The Grundy Economic
Development Council and Grundy County Chamber of Commerce and
Industry are hosting a meeting and presentation regarding the proposed County School Facility Tax
(the proposed sales tax increase which I have previously written about here and here) at 7 p.m. on Tuesday, October 22, in the board room of the Grundy
County Administration Center. The address is 1320 Union St., Morris. The public is welcome to attend this meeting.
The meeting will feature a presentation from representatives of Stifel, Nicolaus, an investment banking firm based in St. Louis, Missouri. They, of course, will tell everyone that they are doing this out of the "goodness of their hearts" and have "no financial interest" in seeing a sales tax increase pass. I find that hard to believe, when they make their money by helping school districts to float bond issuances, and there will be a lot of money to be made on those if this sales tax passes in Grundy County. Mark my words, if the sales tax passes, and Grundy County schools float bonds based on the anticipated revenue from this sales tax, you will see Stifel, Nicolaus and their ilk collecting handsome fees from Grundy County school districts.
An additional side note: the County School Facility Tax has been defeated twice in neighboring LaSalle County (the second time around the percentage opposed was greater than the first time around).
Showing posts with label property taxes. Show all posts
Showing posts with label property taxes. Show all posts
Friday, October 11, 2013
Monday, July 22, 2013
Next Minooka 201 School Board Meeting
The next meeting of the Minooka CCSD 201 school board is
Wednesday, July 24, 2013. The Committee of the Whole Meeting starts
at 6:00 p.m. in the board room (the old library) at the Minooka Primary
Center located at 305 Church Street in Minooka. The Committee of the
Whole Meeting will be followed by the regular Board Meeting at 7 p.m.
Both meetings are open to the public, and everyone is encouraged to
attend. You can find the agenda for each of the meetings here. In addition, for those who are interested, click here and here for information regarding issues that will be discussed at the Committee of the Whole Meeting and the Board Meeting.
Thursday, May 23, 2013
Why I Oppose a Sales Tax Increase for Grundy County
At a recent
joint school board meeting of Grundy County school boards, the possibility of asking voters to approve a School Facility Occupation Tax for Grundy County was discussed. For more background on this tax, see here.
As a member of the Minooka CCSD 201 school board and as a voter, I will be voting "NO" on the question of the tax increase. Here is why:
1. I have two children, currently attending Minooka CCSD 201 schools, who will one day be taxpayers. I would like them to be able to afford to live in Grundy County if they so choose. I am therefore opposed to increasing their future tax burden. This is not a one time referendum for issuing bonds to build a school or two. This is a permanent tax increase. There is no provision in the statute for a county to decide that this tax is no longer needed (if it ever truly was). So, on top of a recent 67% increase in the state income tax (from 3% to 5%), we would be piling on a 16% increase in our sales tax (from 6.25% to 7.25%). I know many people are going to say that "this is for the children" (in fact, I have already heard this), but we should be careful what we do "for the children." The people that are children right now are going to be taxpayers one day. We should do everything in our power not to burden them with additional taxes. Otherwise, they may find that it is too expensive to live in the communities in which they were raised.
2. This would be a pure tax increase no matter what anyone would lead you to believe. This is not swapping one form of tax for another. It has been argued that school districts could lower their property tax levies to offset the impact of this tax. Even if they could, that does not mean that they will. There is no provision which requires them to lower property taxes in response to increased revenue from a sales tax. If you think that some or even any school districts would lower their property tax levies in response to an increased sales tax, you are putting a lot of faith in school boards to look out for the interests of taxpayers. A school board may promise to do this in order to get the voters to support the sales tax increase, but such a school board would have no legal obligation to fulfill the promise and, in any event, cannot bind a future school board (remember, the tax increase would be permanent).
3. Voters will be giving up an enormous amount of control over spending on school facilities. As it stands right now, school districts must come to the voters for approval to issue bonds for capital projects such as building new facilities or improving old facilities. With this tax increase in place, the voters will be giving up the ability to control such spending. School boards will no longer need to "sell" projects to the voters.
4. This money will burn a hole in the pockets of many school boards. Governments, even more than individuals, have a tendency to burn through any money that they can get their hands on. If there is no pressing need to spend and they have money, they spend on what are arguably wasteful projects. Right now, many school districts are feeling the pain of the recession (which brought about falling property tax revenues) and are looking for a way to raise more money. Rather than cutting back on spending to make it through the rough patch, they want to increase revenue. Once we get through this rough patch, however, they will still be collecting money through this tax, even though they will no longer need the revenue. Again, this tax is permanent. You will be paying the tax whether the school districts need it or not. And it can only be spent on school facilities.
5. The revenue from any potential tax increase can only be spent on school facilities. It can not be spent "in the classroom." Some school districts in Grundy County may need new facilities now or in the future. This tax would be collected on behalf of all the school districts in Grundy County whether they need new facilities or not. Let those school districts that have a need for new or improved facilities ask the voters of their districts for approval to issue bonds to fund such projects. That way, taxpayers in those districts that don't have such a need will not have an additional tax burden.
6. A sales tax is the most regressive form of taxation. That is, it has the most impact on those who are least able to pay the tax. Everyone who buys goods in the county will see their sales taxes increase.
7. There has been some talk about how many people who are not residents of Grundy County will pay this sales tax. Well, I doubt that the percentage of such people is very high compared to those of us that live and shop in Grundy County. So, I doubt that there will be much of a subsidy from non-residents. But, even if there were, how is it fair to try to shift the financial burden of educating our children to others?
As a member of the Minooka CCSD 201 school board and as a voter, I will be voting "NO" on the question of the tax increase. Here is why:
1. I have two children, currently attending Minooka CCSD 201 schools, who will one day be taxpayers. I would like them to be able to afford to live in Grundy County if they so choose. I am therefore opposed to increasing their future tax burden. This is not a one time referendum for issuing bonds to build a school or two. This is a permanent tax increase. There is no provision in the statute for a county to decide that this tax is no longer needed (if it ever truly was). So, on top of a recent 67% increase in the state income tax (from 3% to 5%), we would be piling on a 16% increase in our sales tax (from 6.25% to 7.25%). I know many people are going to say that "this is for the children" (in fact, I have already heard this), but we should be careful what we do "for the children." The people that are children right now are going to be taxpayers one day. We should do everything in our power not to burden them with additional taxes. Otherwise, they may find that it is too expensive to live in the communities in which they were raised.
2. This would be a pure tax increase no matter what anyone would lead you to believe. This is not swapping one form of tax for another. It has been argued that school districts could lower their property tax levies to offset the impact of this tax. Even if they could, that does not mean that they will. There is no provision which requires them to lower property taxes in response to increased revenue from a sales tax. If you think that some or even any school districts would lower their property tax levies in response to an increased sales tax, you are putting a lot of faith in school boards to look out for the interests of taxpayers. A school board may promise to do this in order to get the voters to support the sales tax increase, but such a school board would have no legal obligation to fulfill the promise and, in any event, cannot bind a future school board (remember, the tax increase would be permanent).
3. Voters will be giving up an enormous amount of control over spending on school facilities. As it stands right now, school districts must come to the voters for approval to issue bonds for capital projects such as building new facilities or improving old facilities. With this tax increase in place, the voters will be giving up the ability to control such spending. School boards will no longer need to "sell" projects to the voters.
4. This money will burn a hole in the pockets of many school boards. Governments, even more than individuals, have a tendency to burn through any money that they can get their hands on. If there is no pressing need to spend and they have money, they spend on what are arguably wasteful projects. Right now, many school districts are feeling the pain of the recession (which brought about falling property tax revenues) and are looking for a way to raise more money. Rather than cutting back on spending to make it through the rough patch, they want to increase revenue. Once we get through this rough patch, however, they will still be collecting money through this tax, even though they will no longer need the revenue. Again, this tax is permanent. You will be paying the tax whether the school districts need it or not. And it can only be spent on school facilities.
5. The revenue from any potential tax increase can only be spent on school facilities. It can not be spent "in the classroom." Some school districts in Grundy County may need new facilities now or in the future. This tax would be collected on behalf of all the school districts in Grundy County whether they need new facilities or not. Let those school districts that have a need for new or improved facilities ask the voters of their districts for approval to issue bonds to fund such projects. That way, taxpayers in those districts that don't have such a need will not have an additional tax burden.
6. A sales tax is the most regressive form of taxation. That is, it has the most impact on those who are least able to pay the tax. Everyone who buys goods in the county will see their sales taxes increase.
7. There has been some talk about how many people who are not residents of Grundy County will pay this sales tax. Well, I doubt that the percentage of such people is very high compared to those of us that live and shop in Grundy County. So, I doubt that there will be much of a subsidy from non-residents. But, even if there were, how is it fair to try to shift the financial burden of educating our children to others?
Thursday, April 25, 2013
Does Your Superintendent and School Board Want to Increase Your Sales Tax?
A little known provision of Illinois law, called the School Facility Occupation Tax (see here
for the text of the law), allows the school boards representing more
than 50% of the student enrollment in a county to place a question on
the ballot at the next election to raise the sales tax in the county up
to 1%. The proceeds from such sales tax must be used for school
facilities and are allocated to the schools based on student enrollment.
In the recent election on April 9th, voters approved the sales tax increase in 6 of 17 counties and rejected the sales tax increase in 11 of 17 counties. Across the state, the School Facility Occupation Tax has been approved in 17 of the 102 counties.
Grundy County voters may be asked to vote on the School Facility Occupation Tax in the next election. Grundy County superintendents and school boards are already looking into the possibility of gaining additional school revenues through such a sales tax increase. A number of school boards have been privy to presentations by Stifel, Nicolaus, an investment banking firm that specializes in bond financing, regarding the increased revenues available from a sales tax increase, the procedure for getting such a question on the ballot, and the keys to a successful vote.* See here for the presentation to the Finance Committee of Minooka CCSD 201 (Stifel's presentation begins on page 12 of 47).
A joint school board meeting of Grundy County school boards has been scheduled to discuss the School Facility Occupation Tax. The joint school board meeting will take place May 8th at 7 p.m. at the Coal City Early Childhood Center, 755 South Carbon Hill Road, Coal City, Illinois (for the meeting notice and the agenda of the meeting, see here). The public, of course, is welcome to attend and comment.
For recent coverage regarding the sales tax increase proposal in Grundy County, see here and here.
*Stifel's angle, of course, is to place itself to receive increased advisory fees from such school districts when they issue more bonds in anticipation of the revenue represented by the increased sales tax.
In the recent election on April 9th, voters approved the sales tax increase in 6 of 17 counties and rejected the sales tax increase in 11 of 17 counties. Across the state, the School Facility Occupation Tax has been approved in 17 of the 102 counties.
Grundy County voters may be asked to vote on the School Facility Occupation Tax in the next election. Grundy County superintendents and school boards are already looking into the possibility of gaining additional school revenues through such a sales tax increase. A number of school boards have been privy to presentations by Stifel, Nicolaus, an investment banking firm that specializes in bond financing, regarding the increased revenues available from a sales tax increase, the procedure for getting such a question on the ballot, and the keys to a successful vote.* See here for the presentation to the Finance Committee of Minooka CCSD 201 (Stifel's presentation begins on page 12 of 47).
A joint school board meeting of Grundy County school boards has been scheduled to discuss the School Facility Occupation Tax. The joint school board meeting will take place May 8th at 7 p.m. at the Coal City Early Childhood Center, 755 South Carbon Hill Road, Coal City, Illinois (for the meeting notice and the agenda of the meeting, see here). The public, of course, is welcome to attend and comment.
For recent coverage regarding the sales tax increase proposal in Grundy County, see here and here.
*Stifel's angle, of course, is to place itself to receive increased advisory fees from such school districts when they issue more bonds in anticipation of the revenue represented by the increased sales tax.
Monday, December 3, 2012
Next Minooka 201 Finance Committee Meeting
The next meeting of the Minooka CCSD 201 Finance Committee will be Wednesday, December 5, 2012. The Finance Committee meeting starts at
6:00 p.m. in
the board room (the old library) at the Minooka Primary Center located
at 305 Church Street in Minooka. Finance Committee meetings are open to
the public, so everyone is welcome to attend. The Finance Committee will
be discussing a
new deficit reduction plan to further address our operating deficit.
So, if you want your voice heard during the process, you may want to
attend the Finance Committee meeting. The agenda for the meeting is available here.
As an informational reminder, here is a link to the Minooka CCSD 201 budget for fiscal year 2012-2013, as well as a link to a previous post regarding the financial projections which were presented to the Finance Committee this past January. We now know that the EAV (the property value upon which property taxes are based) in the district fell by roughly 8% in 2011, whereas the projections had assumed that the EAV would be stable. Therefore, updated projections would reflect a bleaker local revenue picture than previously projected.
There are really only two courses of action open to the school district. The first course of action is to make the needed cuts in order to bring our spending into line with our realistic revenues under the current property tax rates. The sooner these cuts are made, the smaller the cuts will need to be since their effects would be compounded over time. If the district were going to opt for this course of action, what would be needed would be a complete top to bottom review of the district budget. Every dollar that is being spent would be questioned. Every opportunity to save money would be explored. The current deficit is approximately 5% of the total budget. Which means that for every dollar that the school district spends, it would have to find a way to save 5 cents. The second course of action is to refuse to make the needed cuts (or make largely symbolic cuts) and hope that the voters in the district will vote in favor of a referendum to raise their tax rates. Of course, if the voters vote down the referendum, then the school board and the school district will be faced with making drastic cuts quickly. If this is the situation that we find ourselves in a few years from now, it will not be the fault of the voters but rather the fault of the school board.
As an informational reminder, here is a link to the Minooka CCSD 201 budget for fiscal year 2012-2013, as well as a link to a previous post regarding the financial projections which were presented to the Finance Committee this past January. We now know that the EAV (the property value upon which property taxes are based) in the district fell by roughly 8% in 2011, whereas the projections had assumed that the EAV would be stable. Therefore, updated projections would reflect a bleaker local revenue picture than previously projected.
There are really only two courses of action open to the school district. The first course of action is to make the needed cuts in order to bring our spending into line with our realistic revenues under the current property tax rates. The sooner these cuts are made, the smaller the cuts will need to be since their effects would be compounded over time. If the district were going to opt for this course of action, what would be needed would be a complete top to bottom review of the district budget. Every dollar that is being spent would be questioned. Every opportunity to save money would be explored. The current deficit is approximately 5% of the total budget. Which means that for every dollar that the school district spends, it would have to find a way to save 5 cents. The second course of action is to refuse to make the needed cuts (or make largely symbolic cuts) and hope that the voters in the district will vote in favor of a referendum to raise their tax rates. Of course, if the voters vote down the referendum, then the school board and the school district will be faced with making drastic cuts quickly. If this is the situation that we find ourselves in a few years from now, it will not be the fault of the voters but rather the fault of the school board.
Thursday, October 11, 2012
On the Subject of Property Taxes
Since most of the funding for our schools comes from local property taxes, perhaps we should take a minute to think about the subject of property taxes. Property taxes are not really
"property taxes" at all. They are, in reality, a form of income tax.
What I mean is that while the tax that you pay is certainly based upon
the value of a piece of real property, you do not pay them by selling a piece
of that property or deeding a piece of that property to the taxing
body. You pay the tax out of your income. It is, therefore, a type of
income tax, and a highly regressive one at that (meaning that, on average, the lower your income, the higher the percentage of that income is taken in property taxes). Therefore, when property taxes are increased, it typically has the most impact on those least able to afford the increase.
It is true that you get a deduction on your state and federal income tax return for the property taxes that you paid. But a "deduction" is different from a "credit." A "deduction" does not reduce your income taxes dollar for dollar the way that a "credit" does. A "deduction" merely reduces your taxable income. So, if your tax rate is 15%, for example, your income taxes are reduced by 15% of the amount of property taxes you paid.
If you rent property, such as a home or an apartment, you may think that you are not affected by property taxes. But, it doesn't matter if you own property or rent property, you still pay property taxes (out of your income). If you are a renter, of course, you do not get a property tax bill, but your rent is based in part upon the property taxes that the property owner pays.
It is true that you get a deduction on your state and federal income tax return for the property taxes that you paid. But a "deduction" is different from a "credit." A "deduction" does not reduce your income taxes dollar for dollar the way that a "credit" does. A "deduction" merely reduces your taxable income. So, if your tax rate is 15%, for example, your income taxes are reduced by 15% of the amount of property taxes you paid.
If you rent property, such as a home or an apartment, you may think that you are not affected by property taxes. But, it doesn't matter if you own property or rent property, you still pay property taxes (out of your income). If you are a renter, of course, you do not get a property tax bill, but your rent is based in part upon the property taxes that the property owner pays.
Thursday, August 16, 2012
A "Date with Destiny" or Another Opportunity to Kick the Can Down the Road?
So, Governor Quinn has called a special session of the Illinois General Assembly and set a vote on pension reform for August 17th. Governor Quinn has called this a "date with destiny" (see here). Depending on whose figures you believe, Illinois has anywhere from an $83 billion to $203 billion unfunded pension liability (see here). It is getting to the point where Illinois will soon be spending more on pensions than on education (see here). Increasingly, pension payments are "crowding out" spending on other state services (see here). This fiscal calamity that is staring the Governor and the General Assembly in the face, however, may not be enough (at least, not yet) to prod politicians to actually do anything about pension reform, however. The politicians already seem to be lining up their excuses for kicking the can down the road one more time (see here). Unfortunately, every time that Illinois politicians kick the can further down the road, the problem continues to grow, and the pain necessary to alleviate the problem (including the pain for those who depend on state pensions) continues to grow. Not only does the unfunded liability continue to grow, but the cost of financing state deficits will grow as bond rating agencies downgrade Illinois debt (see here).
You may not be able to depend on Illinois politicians to tackle the problem of pension reform any time soon, but you can depend on at least one thing in this mess: pension liabilities that are not sustainable (and every rational person on both sides of the aisle from the Governor's office to the General Assembly agrees that the pension liabilities are not sustainable) will not be paid in full. Kicking the can down the road does not help anyone (except maybe the politicians, who seem to care only about their next election). It does not help the taxpayers, who can only look forward to their taxes being raised yet again. It certainly does not help the people that depend on the pension liabilities being paid, who may wake up one day to only to find out that the pension they relied upon is being cut drastically (one town in Alabama stopped paying pensions entirely, see here). And it most certainly does not help the younger public sector workers (teachers, firefighters, policemen, etc.) whose positions are being cut because pension obligations are taking a larger and larger share of state and local budgets (see here).
You may not be able to depend on Illinois politicians to tackle the problem of pension reform any time soon, but you can depend on at least one thing in this mess: pension liabilities that are not sustainable (and every rational person on both sides of the aisle from the Governor's office to the General Assembly agrees that the pension liabilities are not sustainable) will not be paid in full. Kicking the can down the road does not help anyone (except maybe the politicians, who seem to care only about their next election). It does not help the taxpayers, who can only look forward to their taxes being raised yet again. It certainly does not help the people that depend on the pension liabilities being paid, who may wake up one day to only to find out that the pension they relied upon is being cut drastically (one town in Alabama stopped paying pensions entirely, see here). And it most certainly does not help the younger public sector workers (teachers, firefighters, policemen, etc.) whose positions are being cut because pension obligations are taking a larger and larger share of state and local budgets (see here).
Friday, May 4, 2012
Risk Management Plans: Legitimate Policy or End Run Around Tax Caps
At the last meeting of the Minooka CCSD 201 school board, the superintendent presented a new Risk Management Plan for the district (see here). So what is a risk management plan? Is it a legitimate policy tool to reduce the risk associated with running our schools or is it an attempt at an end around the tax caps placed on certain funds in the school district's budget (or is it a combination of the two)? And why is this coming up now?
To answer these questions, you have to know a little bit about school finance and how an Illinois school district raises revenue. You also have to understand that our school district raises the overwhelming majority of its funds (80 to 90%) through local property taxes. Now, if you own property in the district, you get a property tax bill every year which includes an entry that shows the tax rate for Minooka CCSD 201. For example, that tax rate for last year (if you lived in Grundy County) was 2.95428 (this is the number you get when you add the rate for "Minooka Grade 201", which was 2.87206 with the rate for "Social Security" listed just below "Minooka Grade 201", which was 0.08222). Well, this one number really consists of a combination of tax rates for each of the various categories of spending that the district has. You can think of these as buckets. The buckets are labeled: education; operations, building and maintenance; transportation; working cash; municipal retirement; social security; tort immunity; special education; fire prevention and safety; lease purchase; and bond and interest. Now some of these buckets (or categories) have rate limits that are set by law and can only be increased by the voters of the district pursuant to a referendum. Others do not have limits that are set by law. The categories and their limits for Minooka CCSD 201 are as follows (the rates are per $100 of equalized assessed value):
Education: 1.62
Operations, building and maintenance: 0.25
Transportation: 0.12
Working cash: 0.05
Municipal retirement: none
Social security: none
Tort immunity: none
Special education: 0.02
Fire prevention and safety: 0.05
Lease purchase: 0.05
Bond and interest: none
You will notice that the funds that do not have tax caps are municipal retirement, social security, tort immunity and bond and interest. The amounts levied for municipal retirement and social security are merely a function of the school district's payroll and so there is not much here to play with. The amounts levied for bond and interest are a function of the school district's current indebtedness. The county clerks are required to levy enough in the bond and interest category to pay the current principal and interest payments on the school district's debt. Since the amount of this debt is limited by statute and the debt typically can only be issued pursuant to a referendum of the voters (but see my post on the Back Door Referendum), the amount levied for this fund is subject to certain controls. You may notice if you look at one of the levies approved by the school board, that the school board does not set a levy amount for this fund.
That leaves the tort immunity fund. Now, the purpose of the tort immunity fund is two-fold. The first is reactive and the second is proactive. The reactive part is to allow the school district to raise money to pay tort claims for which it becomes subject pursuant to a judgment as a result of a lawsuit. The proactive part is to allow the school district to raise money to pay for insurance to cover such tort claims and to pay for risk management activities to decrease the chances of such tort claims in the future.
There is, however, a potential for abusing the tort immunity fund as a way to raise revenue that is more properly categorized under one of the other funds and therefore create an end run around the statutory tax caps. This has been documented by commentators (here and here), as well as being remarked upon by the Illinois legislature itself ("Notwithstanding the extraordinary nature of the [tort immunity tax] . . . it has become apparent that some units of local government are using the tax revenue to fund expenses more properly paid from general operating funds." 745 Illinois Compiled Statutes 10/9-107).
At the end of the day, as long as a school district is raising revenue in the tort immunity fund in accordance with the letter and spirit of the law, the school district should not have any problem. However, if the school district is using the tort immunity fund to pay for items that really should be paid for with another fund, then the school district has a problem. A taxpayer has the right to sue the school district for return of the improperly levied funds. Now, you might think that the likelihood of recovery on a lawsuit of this nature is slim. But there have been some high-profile cases in which taxpayers have won and forced the school district in question to return the improperly levied funds. (See here and here). Notably, the Illinois State Board of Education has even cautioned school districts about their use of tort immunity levies in the wake of the Freeport and Quincy cases (see here).
So, why is this topic coming up now here at Minooka CCSD 201? Well, probably because the school district is levying taxes at the maximum rate in each of the funds that has a rate limit. In addition, the district is currently operating at a deficit with more deficits as far as the eye can see. Faced with that situation, what is a district likely to do?
To answer these questions, you have to know a little bit about school finance and how an Illinois school district raises revenue. You also have to understand that our school district raises the overwhelming majority of its funds (80 to 90%) through local property taxes. Now, if you own property in the district, you get a property tax bill every year which includes an entry that shows the tax rate for Minooka CCSD 201. For example, that tax rate for last year (if you lived in Grundy County) was 2.95428 (this is the number you get when you add the rate for "Minooka Grade 201", which was 2.87206 with the rate for "Social Security" listed just below "Minooka Grade 201", which was 0.08222). Well, this one number really consists of a combination of tax rates for each of the various categories of spending that the district has. You can think of these as buckets. The buckets are labeled: education; operations, building and maintenance; transportation; working cash; municipal retirement; social security; tort immunity; special education; fire prevention and safety; lease purchase; and bond and interest. Now some of these buckets (or categories) have rate limits that are set by law and can only be increased by the voters of the district pursuant to a referendum. Others do not have limits that are set by law. The categories and their limits for Minooka CCSD 201 are as follows (the rates are per $100 of equalized assessed value):
Education: 1.62
Operations, building and maintenance: 0.25
Transportation: 0.12
Working cash: 0.05
Municipal retirement: none
Social security: none
Tort immunity: none
Special education: 0.02
Fire prevention and safety: 0.05
Lease purchase: 0.05
Bond and interest: none
You will notice that the funds that do not have tax caps are municipal retirement, social security, tort immunity and bond and interest. The amounts levied for municipal retirement and social security are merely a function of the school district's payroll and so there is not much here to play with. The amounts levied for bond and interest are a function of the school district's current indebtedness. The county clerks are required to levy enough in the bond and interest category to pay the current principal and interest payments on the school district's debt. Since the amount of this debt is limited by statute and the debt typically can only be issued pursuant to a referendum of the voters (but see my post on the Back Door Referendum), the amount levied for this fund is subject to certain controls. You may notice if you look at one of the levies approved by the school board, that the school board does not set a levy amount for this fund.
That leaves the tort immunity fund. Now, the purpose of the tort immunity fund is two-fold. The first is reactive and the second is proactive. The reactive part is to allow the school district to raise money to pay tort claims for which it becomes subject pursuant to a judgment as a result of a lawsuit. The proactive part is to allow the school district to raise money to pay for insurance to cover such tort claims and to pay for risk management activities to decrease the chances of such tort claims in the future.
There is, however, a potential for abusing the tort immunity fund as a way to raise revenue that is more properly categorized under one of the other funds and therefore create an end run around the statutory tax caps. This has been documented by commentators (here and here), as well as being remarked upon by the Illinois legislature itself ("Notwithstanding the extraordinary nature of the [tort immunity tax] . . . it has become apparent that some units of local government are using the tax revenue to fund expenses more properly paid from general operating funds." 745 Illinois Compiled Statutes 10/9-107).
At the end of the day, as long as a school district is raising revenue in the tort immunity fund in accordance with the letter and spirit of the law, the school district should not have any problem. However, if the school district is using the tort immunity fund to pay for items that really should be paid for with another fund, then the school district has a problem. A taxpayer has the right to sue the school district for return of the improperly levied funds. Now, you might think that the likelihood of recovery on a lawsuit of this nature is slim. But there have been some high-profile cases in which taxpayers have won and forced the school district in question to return the improperly levied funds. (See here and here). Notably, the Illinois State Board of Education has even cautioned school districts about their use of tort immunity levies in the wake of the Freeport and Quincy cases (see here).
So, why is this topic coming up now here at Minooka CCSD 201? Well, probably because the school district is levying taxes at the maximum rate in each of the funds that has a rate limit. In addition, the district is currently operating at a deficit with more deficits as far as the eye can see. Faced with that situation, what is a district likely to do?
Friday, January 20, 2012
Link to Updated Financial Projections for Minooka CCSD 201
Click here for a link to the updated financial projections which Mr. Gegenheimer presented to the Finance Committee on January 19, 2012. I encourage you to review this presentation. Pay particular attention to pages 12 and 18 of the slide show. Page 18 shows the deficits that Minooka CCSD 201 will run in the future unless we adopt additional deficit reduction measures. Page 12 shows the significant assumptions that were used to produce the projections. You should note in particular assumptions numbered 1,2 and 9. Assumption number 1 is what is, in large part, driving the deficit problem. The assumption states that our costs will increase at roughly 3% per year. Now 3% does not seem like a lot. However, 3% per year is a description of what in math is called an "exponential function." The interesting thing about exponential functions, as any math teacher can tell you, is that the quantity described by any exponential function where the growth rate is greater than 1 (such as here where the rate of growth is 1.03 per year or 3% growth per year) grows at an ever-increasing rate due to the "magic" of compounding. Click here for a graph of an exponential function, and you can visualize what I mean. This phenonmenon of exponential growth in expenses is what is bankrupting our federal, state and local governments. It comes down to a failure to control costs. Without aggressively controlling costs, the only way to stave off deficits and eventual bankruptcy is to continually increase taxes. This, of course, shifts the problem with the exponential function to the taxpayer and merely delays the inevitable, since there is only so much the taxpayer is willing or able to pay (and we should recognize that those industrial and commercial taxpayers who ostensibly don't get to vote in our elections for school board or our referenda do have the ability and willingness to "vote with their feet" and leave a district where taxes become too high for them to bear or significantly higher than other districts where they might locate). Now, while our district has a deficit problem, we do not yet have operating debt (as opposed to debt from capital improvements) nor are we anywhere close to bankruptcy. This does not mean, however, that we should not aggressively attack our deficit problem by controlling costs. On the contrary, it is precisely now that we should be making cuts, since smaller cuts now will preclude the need for larger cuts later. Assumption number 2 states that the district's equalized assessed valuation (EAV) will remain flat for three years then grow at a rate of 3% per year. The problem with this assumption is that it likely paints an unrealistic picture of the future. EAVs in Illinois are based on the market values in the prior three years, so the 2011 EAV is based on market values for 2008, 2009 and 2010. Real estate market values continued to drop throughout 2011 (as most of us know all too well) and this drop is not yet reflected in the district's EAV. The 2012 EAV will most likely be another 3 to 4 percent lower than the 2011 EAV. Even if real estate values stabilize in 2012, the 2011 decrease is not reflected in the projections. Assumption number 9 states that there will be a gradual increase in the total tax rate after the 2011 levy. There are a couple of problems with this assumption. First, this would require successive votes of the school board in each of these years. Second, without this assumption, the financial projections would be worse than what has been presented. I have asked for this assumption to be removed and the projections to be revised. I will post them as soon as they are available.
Click here for a link to the Finance Committee page on the district's website. The meetings of the Finance Committee are open to the public, and everyone is welcome to attend.
Click here for a link to the Finance Committee page on the district's website. The meetings of the Finance Committee are open to the public, and everyone is welcome to attend.
Thursday, January 19, 2012
Finance Committee Meeting Today
Sorry for the short notice, but I almost forgot. There will be a meeting of the Minooka CCSD 201 Finance Committee today, January 19, 2012. The Finance Committee meeting starts at 6:00 p.m. in the board room (the old library) at the Minooka Primary Center located at 305 Church Street in Minooka. If you want to have some input into the Minooka CCSD 201 finances, you may want to attend this meeting. There should be updated projections as to the financial position of the school district in the coming years.
Saturday, November 12, 2011
Next Minooka 201 School Board Meeting and Finance Committee Meeting
The next meeting of the Minooka CCSD 201 school board is Wednesday, November 16, 2011. The Committee of the Whole Meeting starts at 6:00 p.m. in the board room (the old library) at the Minooka Primary Center located at 305 Church Street in Minooka. The Committee of the Whole Meeting will be followed by the regular Board Meeting at 7 p.m. Please be sure to mark your calendars. You can find the agenda for each of the meetings here.
Also, there will be a meeting of the Minooka CCSD 201 Finance Committee on Tuesday, November 15, 2011 (the day before the school board meeting). The Finance Committee meeting starts at 6:00 p.m. in the board room (the old library) at the Minooka Primary Center located at 305 Church Street in Minooka. If you want to have some input into the Minooka CCSD 201 finances, you may want to attend this meeting. You can at least get some information about when and by what amount the school board will eventually seek to raise your property taxes. It may not be this year or next year, but you can be assured that in the next few years the school board will seek, either by a rate hike referendum or a "back door referendum," to raise property tax rates. (For an explanation of a "back door referendum" see here.)
Also, there will be a meeting of the Minooka CCSD 201 Finance Committee on Tuesday, November 15, 2011 (the day before the school board meeting). The Finance Committee meeting starts at 6:00 p.m. in the board room (the old library) at the Minooka Primary Center located at 305 Church Street in Minooka. If you want to have some input into the Minooka CCSD 201 finances, you may want to attend this meeting. You can at least get some information about when and by what amount the school board will eventually seek to raise your property taxes. It may not be this year or next year, but you can be assured that in the next few years the school board will seek, either by a rate hike referendum or a "back door referendum," to raise property tax rates. (For an explanation of a "back door referendum" see here.)
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