RESPONDENT: Illinois Department of Revenue
LOCATION: United States District Court for the Western District of North Carolina, Charlotte Division
DOCKET NO.: 86-251
DECIDED BY: Rehnquist Court (1986-1987)
LOWER COURT: Supreme Court of Illinois
CITATION: 482 US 182 (1987)
ARGUED: Mar 31, 1987
DECIDED: Jun 08, 1987
Erwin N. Griswold - on behalf of Appellant
Patricia Rosen - on behalf of Appellees
Facts of the case
Media for Rockford Life Insurance Company v. Illinois Department of Revenue
Audio Transcription for Oral Argument - March 31, 1987 in Rockford Life Insurance Company v. Illinois Department of Revenue
William H. Rehnquist:
We will hear arguments next in No. 86-251, Rockford Life Insurance Company against Illinois Department of Revenue, et al.--
Mr. Griswold, you may proceed when you are ready.
Erwin N. Griswold:
May it please the Court, this case is here on appeal from the Supreme Court of Illinois.
The question, summarily stated, is whether certificates of the Government National Mortgage Association, popularly known as Ginnie Mae and I shall refer to it as Ginnie Mae in the argument, guaranteed as to interest and principal by the full faith and credit of the United States, pursuant to an Act of Congress, are subject to an ad valorem property tax of the State of Illinois.
I will seek to show that the bonds are exempt from taxation.
First, under general constitutional principles, including the Supremacy Clause, since the unqualified Government guarantee which they contain is the key and essential element in carrying out an important policy deliberately adopted by the Government of the United States under the Commerce Clause and in providing for the general welfare.
And, second, pursuant to the express terms of Section 742 of Title 31 of the United States Code, in which the Congress has long provided, since the Civil War, that, and I quote:
"All stocks, bonds and other obligations of the United States shall be exempt from State taxation. "
Rockford Life Insurance Company bought the bonds involved here in 1977 at a time when Illinois did not impose its property tax on Ginnie Mae bonds.
However, on December 31, 1978, the Illinois Department of Local Government changed its rule and imposed the tax for 1978.
That led to administrative and Court proceedings, as a result of which the tax was sustained by the Supreme Court of Illinois.
Rockford then brought the case here and this Court noted probable jurisdiction on November 10th.
In considering both the constitutional and the statutory questions, it is important to have a clear picture of the history of the Government National Mortgage Association and the role which it plays in the housing policy of the United States.
The origins go back more than 50 years, to 1934.
Some of us remember and others have learned that real estate markets then were moribund.
Housing starts had dropped from 937,000 units in 1925 to 93,000 in 1933.
Foreclosures were at epidemic levels, as this Court's decision in Home Building and Loan Association against Blaisdell clearly records.
Before that time, many efforts had been made by insurance companies and others to insure mortgage debt but the experience was disastrous.
It was in this situation that President Roosevelt established a Commission to explore housing finance and out of its report came the First National Housing Act, enacted in 1934.
One of the proposals embodied in that Act was the grant of authority for the creation of Federally chartered, privately owned national mortgage associations with power to buy and sell mortgages and issue bonds against them to the general public.
Several national policy objectives were expressed.
One, to provide new sources of mortgage funds.
Two, to provide liquidity for mortgage lenders.
That is, marketability and I suggest that is a very key element here.
Three, to lower the cost of mortgage funds by increasing the supply of funds.
And four... and this is another important one... to move mortgage funds from localities where funds were available to areas where credit was in shorter supply.
Despite the authorization and the hopes that lay behind it, the program under the 1934 Act was a complete failure.
No private mortgage association was ever established under the program and in 1948, fourteen years later, the program was repealed.
In 1938 the Federal National Mortgage Association, sometimes called Fannie Mae, was chartered.
One of its purposes was to create a secondary market for mortgages, thereby channeling Federal credit to the housing industry but Fannie Mae did not issue mortgage backed securities.