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Illinois School Board Journal
July/August 2001

Budget enemy number one

By Linda Dawson and James Russell

When it comes to the number one "problem" for budget building, one of Illinois' venerated authorities on school finance points his finger at the Property Tax Extension Limitation Law (PTELL).

"I would nominate tax caps and tax ceilings as the biggest negative factor in local budget building," said G. Alan Hickrod, former professor of Educational Administration and Foundations at Illinois State University in Normal. And he finds the situation a curious irony.

"For state aid purposes, the state regards local districts as wealthy when they have high property valuations per pupil and therefore gives them less state aid," Hickrod said. "However, when these same districts are not able to access that wealth because of tax restrictions, they are not really very well off. Neither law nor basic school finance theory takes this phenomenon into consideration."

When states use tax restrictions extensively, that means poorer districts may wind up with more local budget flexibility than richer districts.

"For this and other reasons," he said, "local budgets have grown far more rigid over time. Every dime is fully committed and hence there is nothing for new procedures or new programs.

"As the budget noose tightens, the organization gets less and less able to react to changes in its environment. If anything new is to be attempted in the district, it will likely be supported by state and federal dollars and not local dollars."

Unfortunately, state and federal dollars often are fully committed to specific programs, leaving nothing to support change and innovation, he said.

"The best thing the federal and state governments could do would be to provide more 'seed' money for new initiatives," Hickrod said.

Richard L. Wiggall, assistant professor in the College of Education, Education Administration and Foundations at ISU, agrees, adding that school districts, more than other governmental entities, appear to be hurt by tax caps because they are more dependent on local property taxes.

"Tax caps are placing a major limitation on their primary source of revenue," Wiggall said, "but no one caps school district expenses."

A recent survey of Illinois superintendents asked if tax caps were causing program cuts, personnel cuts or would lead to a referendum in the next three years, Wiggall said.

"While they were less certain about personnel, (many responded) they did see programs cuts or a referendum in their future," he said.

He finds the situation most critical for smaller school districts subject to tax caps because they "have so little margin for error, they keep out-spending their revenue."

Currently, 37 counties in Illinois are subject to PTELL. Of those, tax caps were mandated by the state legislature in Cook County and its surrounding "collar" counties, DuPage, Kane, Lake, McHenry and Will, and were approved by voters in 31 other counties. No county voting in tax caps has as yet tried to rescind the measure once adopted.

Of those 37, two adopted tax caps in their second attempt. Voters in eight counties have prevented tax caps from being enacted since PTELL was authorized 10 years ago.

The impact of caps has fostered a "use-it-or-lose-it" attitude among taxing bodies. According to Richard Dye, professor of economics at Lake Forest College, a lot of taxing units were taxing below their maximum rates anyway. "This was either prudent or stupid," he recently told a group of policy-makers and advocates at a seminar hosted by the Institute of Government and Public Affairs and the Lincoln Institute of Land Policy.

Instead, taxing districts now maximize their levies to the fullest amount to mitigate the effect of caps. In addition, some government units resort to higher user fees and alternative taxes to take the sting out of the cap effect.

Referenda will remain as the potential override to tax caps. But doing this requires taxing bodies to marshal community resources to surmount the power that tax caps placed in the hands of voters.

"It's not impossible to overcome, but they (tax caps) have resulted in some interesting coalitions," Dye said. "It comes down to bartering votes between these groups to effectively override such controls."