Seminar on School Finance - Property Taxes and the Tax Levy (and other Local Revenues) Steve Miller CPA Senior Financial Advisor PMA Financial Network, Inc. Warrenville, IL x6413

Introduction & Personal Objectives for Workshop Please state your name, Where you work, what you do there and What you hope to learn from this workshop.

This Morning’s Objectives Understand the Local Sources of Revenues Understand the Property Tax Cycle Understand the State Sources of Revenues Understand the Federal Sources of Revenues

Local Revenues - Objectives Recognize school funding as a political process. Recognize our “over” dependence on property taxes. Become familiar with the property tax levy and extension cycles. Be cognizant of the time frame for each process. Start looking for alternate revenue sources.

Revenue by Source State-wide

Local Revenues Investment Earnings Student Fees Impact/Transition Fees Corporate Personal Property Replacement Taxes (CPPRT) Local Property Taxes Other Local Revenues

Investments If you have fund balances, do a multi- year cash flow analysis Maximize interest earnings by investing funds for the longest term based upon the cash flow analysis

Student Fees Textbooks Classroom Supplies Drivers Education ($50) Waivers Technology Athletic Participation Student Activities Parking Permits Etc. Any other ideas?

Impact Fees From new housing developments Work with villages and/or county to establish consistent impact fees Make sure the villages/county distribute the funds timely To be used for construction needs

Transition Fees From new housing developments Work with villages and/or county to establish consistent impact fees Make sure the villages/county distribute the funds timely To be used to bridge the timing gap between students and revenue (GSA and property taxes)

Corporate Personal Property Replacement Taxes State tax on net income of corporations to replace local tax on the assessed value of corporate personal property (1979) Jan, Mar, Apr, May, Jul, Aug, Oct, Dec payments Will fluctuate (+/-) with the economy

Property Assessment Cycles Property Tax Cycles Budget Cycle

Local Property Taxes Assessment Process Review Process Equalization Process Levy Process Truth in Taxation Tax Extension Property Tax Extension Limitation Law (PTELL) Collection and Distribution Referendums Assessment Appeals & Other Issues

Assessment Process At the Township level, assessors identify real property, appraise and place value on it. You should double check that properties are on the books. Know your assessor(s). Market value determined by Real Estate Transfer Declaration (Green sheet) for similar properties. Business/Industrial properties are valued based upon market value as well as income generated. Illinois statute states assessed value should represent 33.3% of market value except for farm land. Farmland is assessed using a yield-based formula. A few counties have special classification systems. Manage your real properties – new growth, TIFs

Cook County Classification System Vacant Land22% Actual % Residential 16% Actual % Apartments24% Actual % Not-for-Profit30% Commercial38% Actual % Industrial36% Actual %

Cook County Classification System SB2112 (“Houlihan Bill”) Increased Homeowner ($5,000) and Senior Citizen ($3,500) Exemptions State-wide Effective for tax year 2003, imposed a 7% cap on residential reassessment increases in Cook County (other counties could (but haven’t) adopted the cap) 7% cap expires after 2005 tax year unless extended by legislation 2006 Reduction of apartment assessment rate from 33% to 20% over four years Attempts to extended 7% Cap

Review Process Purpose - For system to correct under, over, and non-uniform assessments by local assessor. Assessor sends changes to property owners. Publishes. Property owners can go to the assessor and then the Board of Review to challenge their assessment. Next level of challenge - Property Tax Appeals Board (PTAB) or Circuit Court

Equalization Process Purpose - To bring all township assessments to the state mandate of 33.3%. Multiplier is applied to township and then county assessments (except Cook). Cook County multiplier is determined by the Illinois Department of Revenue. EAV = Multiplier x Assessed value Cook County Warning – Your EAV may go down the year of Chicago’s reassessment. Cook County Multipliers

Levy Process School district passes budget Determine levy amount. How much do you ask for? Are you under the Tax Cap? If required: Publish in Newspaper Hold public hearing Board adopts Levy File Certificate of Tax Levy with County Clerk prior to Dec. 31st. Double-check the bond amounts (County clerk offices can make mistakes!) File Abatements, Certificate of Compliance, PTELL resolutions if required

Truth in Taxation Effective January 1, 2003 Cook County has same requirements as other counties. If current year’s levy request (excluding bond and interest) is more than 5% greater than prior year’s extension: A notice must be published in a newspaper A public hearing must be held The determination of the applicability is usually established through the adoption of a tentative levy Determination can be no less than 20 days before the adoption of the levy ordinance.

Truth in Taxation If Truth in Taxation notice is required Publication must be no more than 14 and no less than 7 days before the date of the public hearing Same rules apply as for other notices regarding “newspaper of general circulation” etc. Public Hearing District explains the reasons for the levy and any increases District must permit anyone wishing to speak the opportunity Can be part of a regular Board of Education meeting (no longer first Tuesday in December)

Tax Extension Adds loss amount to District levy Calculate Property Tax Extension Limitation Calculate final tax rates for each taxing district Extend taxes on Equalized Assessed Value and enters in county Collector’s books Deliver Collector’s books to county Treasurer for preparation of bills

Property Tax Extension Limitation Law Enacted in Collar Counties in 1991, Cook County in 1995, and by referendum in some downstate counties. Limits the increases in property tax extension to 5% or the increase in the “Consumer Price Index-All Urban Consumers” (CPI-U), whichever is less. Allows for issuance of limited tax bonds where bond debt cannot exceed 1994 tax levy for bond debt. Enacted in Amendments. PTELL enacted for remaining Illinois counties if approved at county-wide referendum. If law is approved in referendum, then it becomes effective in the next levy year.

Tax Capped Counties

Property Tax Extension Limitation Calculations Limiting rate = (Aggregate Extension Base x (1+ CPI)) / (Equalized Assessed Valuation - New Property) Aggregate Extension Base - Prior year extension for all funds excluding the debt service fund. (i.e.: for 2006 tax year, 2005 total tax levy extended less tax extended for debt service) CPI - All Urban Consumer Price Index for December 31st. CPI for December 2006 – 2.5% New Property - New improvements or additions to existing improvements on any parcel of real property that increased the assessed value of that real property. Debt Service Extension Base: The tax levy for debt service levied in tax year when the Law is enacted.

CPI History

Assumptions and Givens

2005 Levy & Tax Rate / 2006 Proposed Levy

Limiting Tax Rate Calculations

2006 Tax Levy and Estimated 2006 Tax Rate

Collection & Distribution Two mailings of tax bills Taxes due one month after billing date Distribution : Cook County March & Fall; Collar Counties 1/2 in June and 1/2 in September; Downstate often July and September Delinquent tax list and send notice of Application for Judgment on Real Estate

Problem: Calculate Levy & PTELL Separate into small groups of 3 or 4. Review Levy, compute limiting rate, and individual fund rates/extensions

Tax Levy Problem – Assumptions & Givens

Tax Levy Problem – Determine Levy Amount

Limiting Tax Rate Calculation

2006 Tax Levy and Estimated Tax Rate and Extension

Referendums (old law – March 2006 and prior) Have your legal counsel and county clerk(s) check your referendum question(s) as well as calculations in subsequent years. If a district receives a tax rate increase, then a Rate Increase Factor is applied to the numerator of the Limiting Rate Calculation. Rate increase can be implemented over a maximum of five years If you apply all your referendum increase the first year the Rate Increase Factor formula would be: (Aggregate Rate for Prior Year + Rate Increase) / Aggregate Rate for Prior Year If you implement the rate increase over five years the Rate Increase Factor Formula: (Aggregate Rate for Original Prior Year + Current Unused Rate) / Aggregate Rate for Original Prior Year Limiting rate = ((Aggregate Extension Base x (1+ CPI)) x Rate Increase Factor) / (Equalized Assessed Valuation - New Property)

Referendums ( new law – SB1682 ) Again, have your legal counsel and county clerk(s) check your referendum question(s) as well as calculations in subsequent years. No more rate increase factors No more individual fund rate increase questions New ballot question asks for an increase in the total limiting rate for 1 to 4 years Even if you haven’t passed a referendum, it allows you to extend up to the statutory maximum rates in individual funds. No new money, just increased flexibility between funds.

Assessment Appeals

Time Frames for Filing Appeals Township Assessor – after receipt of proposed assessment. Board of Review – by township closing date. PTAB – within 30 days of date of final decision from Board of Review. (Mostly commercial and industrial assessment appeals go beyond the Board of Review) Circuit Court – within 120 days of second property tax installment due date

Typical Issues for Commercial/Industrial Appeals Fair cash value – this is determined by a proper appraisal Uniformity Vacancy/Occupancy Recent sales Legal arguments (open space, conservation easement, historic property, etc.) Exempt status

Your Rights at the Board of Review (BOR) Right to notice if over $100,000 EAV Change Right to Intervene (submit letter within 14 days) May submit evidence and defend current assessment Attend the hearings to 1) make sure the appellant knows that the taxing bodies have knowledge of what is going on and will be actively involved, 2) look at the evidence submitted by the appellant (if presented) and the township assessor, 3) to encourage the parties involved to come to a settlement. All settlements at the BOR are pre-tax extension.

Your Rights at the Property Tax Appeal Board (PTAB) Right to notice - submit within 30 days Only legal counsel can represent taxing bodies The appeals process at PTAB may take up to two years to resolve. The volume of PTAB Appeals State Wide: 1997 – 3,072; 1999 – 6,176; 2002 – 9,918 Manage your legal counsel- legal counsel will hire an independent appraiser to review the appellant and the township’s appraisal. If appraiser believes the appellant’s assessment is closer to the fair market value, do nothing. If the appraiser believes the township assessor’s numbers are closer to the fair market value then submit that to PTAB. If the appraiser believes that both assessments are low, then get a full appraisal of the property and submit that to PTAB and request an assessment increase. Form consortiums with other taxing bodies to share the cost of challenging the assessment appeals. All settlements come out of current year’s tax collections

Your Rights at the Circuit Court You are not notified of cases presented to the court Some legal firms have begun monitoring the filings and can notify you if a relevant case is filed. The Illinois State’s attorney and the county assessor represent the taxing bodies. All settlements come out of current year’s tax collections Keep an eye on this as this is a growing issue, especially in Cook County

Other Local Revenues Foundations Local Grants Corporate Sponsorships

Finally, The End Any Questions?