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Illinois School Board Journal
January-February 2001
Feeling the impact of tax caps
by Linda Dawson
Linda Dawson is IASB director of editorial services and Journal editor.
The future of funding for Illinois' schools is uppermost on the minds of school board members and administrators throughout the state as many districts struggle to make ends meet. But districts in three dozen Illinois counties have yet another piece in this difficult puzzle of "who pays what and how": the Property Tax Extension Limitation Law (PTELL).
More familiarly known as tax caps, the law was mandated by the General Assembly in 1991 to take effect for the tax year 1992 in the Chicago collar counties of DuPage, Kane, Lake, McHenry and Will. Tax caps have been applicable in Cook County for six years. Downstate counties have had the option to institute tax caps, by public vote, for five years, and by 1999, 28 had done so. Another three counties, Greene, Massac and Shelby, approved PTELL in November 2000.
It's really too soon to assess the entire impact of PTELL in Illinois, according to panelists at this year's Joint Annual Conference in Chicago. But the outlook from their perspective is not good for the future of school finance. And for some, the dire consequences are already here.
"It's not the heart attack that kills right now," lamented Cal Jackson, a former superintendent who is now the legislative liaison for the Illinois Association of School Business Officials. "It's the cancer that gets you in 12 to 15 years."
Those who sat on the panel -- Jackson; James N. Rachlin, a senior vice president/manager in the public finance department at Griffin, Kubik, Stephens & Thompson Inc. in Chicago; and Daniel Casing, business manager with Unit School District 187 in North Chicago -- all outlined dire consequences for school districts as well as other governmental entities whose coffers are limited by tax caps.
As envisioned by legislators, tax caps sought to slow the growth of revenues in taxing districts where property values and assessments were increasing faster than the rate of inflation. PTELL limits the total taxes billed for non-home-rule districts to the lesser of 5 percent or the increase in the national Consumer Price Index, according to the State Department of Revenue. But when they were instituted, panelists said, no one could have predicted that the CPI would be less than 3 percent for seven of the past eight years.
According to revenue department statistics on its Web site (www.revenue.statel.il.us), the cumulative savings for taxpayers in counties subject to PTELL were $1.36 billion between 1991 and 1997.
Taxpayers are being saved money, but how has it affected individual school districts under tax caps?
In his school district in Macoupin County, Jackson said, four teaching positions had to be eliminated during the first year of tax caps. While tax caps have saved him about $200 a year for the past three years on his property taxes, they have cost his school district increasingly greater amounts: $74,100 the first year; $170,500 the second; and $253,000 the third.
Districts like New Lenox SD 122 in Will County and Round Lake Area SD 116 in Lake County also are struggling with finances, as reported in the Daily Southtown and Chicago Tribune, respectively. Both have sought emergency funding assistance from the General Assembly to no avail.
New Lenox district officials pinned their hopes on averting $1.7 million in budget cuts on a lobbying trip to Springfield in late November. Although New Lenox Mayor Mike Smith, who accompanied Superintendent Tom Mullins and school board president Joe Ballerini, labeled the trip "productive" in terms of meeting with legislators and lobbying for school funding changes, all were reportedly disappointed when they came away without the needed emergency funding.
Voters defeated a 40-cent increase for the district's education fund on November 7, the seventh referendum defeat since 1976. According to the Daily Southtown, the district is dependent on property taxes for about two-thirds of its operating expenses and is growing at the rate of 300 students a year. "Without voter approval of tax hikes, the (state's school funding) formula and the property tax cap squeeze school districts such as District 122 that have rising enrollment and little business or industry to relieve the property tax burden on homeowners," the newspaper said.
Round Lake officials, too, were disappointed when a hoped-for supplemental appropriations bill failed to make it onto the fall veto session agenda.
"This is not a good day for District 116," Superintendent Mary Davis told the Chicago Tribune, although she was confident that legislators would make her district a priority in the next session. The Round Lake district has already cut $23 million from its budget by imposing a salary freeze, eliminating dental benefits for staff, and cutting all assistant principal positions at the elementary level, Saturday sessions, high school auto classes and middle school life-skills classes. The cuts also reduced the number of teaching assistants, resulting in three psychologists, two social workers and a high school assistant principal being let go.
Even after the budget knife fell, District 116 still needs another $1.3 million in cuts to balance its $40.1 million budget.
The numbers, and similar scenarios in other districts, would not be surprising to those who sat on the tax caps panel.
"We're talking about big dollars that affect school districts," Jackson said. "This is an issue that's broader than all of you."
Districts already running on lean budgets actually have less room to cope, according to Rachlin. "Tax caps punish good stewardship."
"For five years, you have a problem you think you can cope with," he said, providing graphs to substantiate how expenses will always outstrip income under PTELL. "You may think you can draw down on reserves, but you're losing interest. You'll burn through reserves faster than anticipated."
On his chart, a district with a reserve of $1.5 million that is expected to last 10 years actually zeros out in eight years because the district loses money each year on the amount of interest that the reserves produce. And that's in a no-growth situation. A district even in a 3-percent-a-year growth situation will burn through reserves even faster, he said.
Even assessment growth "can kill you," Rachlin said, and residential growth hurts more than business and industrial growth.
He gave this example of adding just one student to a district: If it costs $6,500 to educate a student and you subtract $2,625 through taxes to a new home and an additional $2,340 in state aid, you still have an additional cost of $1,535 for adding a pupil. Multiply this by the number of children in a proposed new subdivision and then consider the cost of the need for the additional teachers, buses and staff.
Not only are district revenue increases capped, Casing said, "you have very little to look at as a debt service." A district that goes under PTELL owing $1.7 million creates a "window" of debt to which it will be confined for the next 20 years.
Without tax caps, you can add up to 5 percent over last year without a hearing, he said. Under PTELL, the only recourse to more than the allowable percentage of increase (the lesser of 5 percent or the CPI) is to issue bonds to generate "new monies" or ask voters to approve a greater increase through a referendum, Casing said.
As evidenced by the history in New Lenox (seven defeats in seven tries) and other communities, passing a referendum to increase property taxes is rarely automatic and often seemingly impossible.
While budgeting for increased day-to-day costs with salaries and insurance, school districts also are under pressure from business and parents to add technology to the classroom. To put computers in a classroom is not just a one-time expense, Casing said. Districts may be able to afford the computers under tax caps, but they also need printers and the electricity to run the new technology, as well as the trained personnel to teach the classes.
"It would seem that something this bad would have to have a good side," Casing said, but acknowledged that he's still looking.
Jackson said one change not in place when the legislation was originally introduced is that now a county can vote to remove PTELL. However, it may be difficult to persuade voters to lift the tax caps. No county has yet to try to free itself from tax caps, according to Patricia Freeman of the Illinois State Board of Elections.
School districts and other governmental subdivisions need to be more fiscally responsible, the panel concedes, but not to the point of being put out of business.
"Look at our county in five years," Jackson said, referring to PTELL as
"the consolidation law of the '90s in 2000." "Some of those (school)
districts won't be there. Maybe they shouldn't be, but not as a consequence of
tax caps."