Understanding How Changes in EAV Affect A School District's Tax Rate and Levy This presentation will explain the important relationship between

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1 Understanding How Changes in EAV Affect A School District's Tax Rate and Levy This presentation will explain the important relationship between property values, property tax rates, and property taxes. The impact of outstanding debt will also be included. 1

2 Educational Philosophy of a Good Lesson Plan Our goal is for you to leave this presentation with a better understanding of factors that determine a levy and how it affects the tax bill of the public you represent Present the material Open forum feel free to ask questions Review material at the end 2

3 Four Main Variables of the Levy How the EAV (Equalized Assessed Value) or value of your house affects your tax bill How the EAV of others affects your tax bill How a straight CPI (Consumer Price Index) tax increase works Why school districts levy for more than they will actually receive 3 We will be using Lake County language with EAV as 1/3 of value

4 Definitions Levy The amount of dollars requested by a governmental agency EAV The value that the assessor s office places on home and/or land that is tax CPI Consumer Price Index that is determined monthly as it relates to cost of living Tax rate Determined by dollars requested by governments and total EAV assessed TIF Tax Increment Financing 4

5 Main Variables to the Levy The assessment of your property (building and land) The rates (dollars) collected on the assessment of your property as it relates to your town/village/city/schools/park district/library Total EAV of taxing body Your specific EAV as a proportion 5

6 Schools Levy Dollars The school levy in dollars not rates The dollars requested increase from previous year to the levy Those dollars are divided by the EAV to come up with a rate New properties or a new homes are ADDED to the EAV and do not LOWER the dollars levied by the school, they add to the levy The Bond and Interest fund is driven by the original sale of the bonds and not included in the levy process for calculations. 6

7 Include New EAV with the Levy If you do not capture all the new EAV the first year it goes on the county books, you can never capture it in the future as new (additional over the cap) The new properties are collected beyond the capped levy amount Funds from the captured TIF or new properties are not included in the capped levy limit (5% per state law) 7

8 EAV Sets the Rates that Make Your Tax Bill Amount In a perfect world, all EAV is static and never goes down When EAV goes down for one tax payer, the loss is covered by other EAV payers The larger the number of taxpayers and EAV, the smaller the impact to individual tax payers 8

9 Great now explain it to me Lucy We will show many examples We will try and K.I.S.S the topic We will run different scenarios with changing ONE variable to show the different impacts You will be able to access this PowerPoint for future reference 9

10 Condominium Example If a condominium complex has 10 units The cost to maintain the complex is $10,000 Each unit would be assessed $1,000 One of the owners goes bankrupt and can not pay his portion of the bill The complex still needs to pay the $10,000 The nine condominium owners now pay $1,111 each to make up the difference 10

11 Small Town USA 4 houses built all the same House values are all $ 300 K or $ 100 EAV 1 school funded 100% local taxes Each house has 5 students 1 teacher at the school Teacher Salary and building is $ 100,000 for entire budget Each house pays $ 25,000 annually Four scenarios will show changing factors 11 Obviously real situations are much more complicated. This keeps it simple.

12 Tax Year #1 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Total school cost for year is $ 100,000 budget with no other revenue 12

13 Levy 2011 vs 2012 No Changes Base Levy for 2011 Tax year 2011 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, $ 400,000 $ 100, No Increase to Levy from 2011 to 2012 CPI 0% Tax year 2012 School Year Home Value EAV School Taxes Rate $ 25,000 House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, Totals $ 1,200,000 $ 400,000 $ 100, $ 100,000

14 Tax Example #2 CPI 5% increase Rate= = $ 26,250 Rate= = $ 26,250 Rate= = $ 26,250 Rate= = $ 26,250 Total school cost for year is $ 105,000 budget with no other revenue 14

15 Levy 2011 vs with 5% CPI increase Base Levy for 2011 Tax year 2011 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, $ 400,000 $ 100, % CPI Increase from no value changes CPI 5% Tax year 2012 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 26, House 2 $ 300,000 $ 100,000 $ 26, House 3 $ 300,000 $ 100,000 $ 26, House 4 $ 300,000 $ 100,000 $ 26, Totals $ 1,200,000 $ 400,000 $ 105, $ 105,000

16 Tax Example #3 One home is destroyed and students stay in district and new budget increase of 0% from previous year EAV = $50 K Rate= = $ 14,286 Rate= = $ 28,571 Rate= = $ 28,571 Rate= = $ 28, Total school cost for year is $ 100,000 budget with no other revenue

17 Levy 2011 vs With 0% CPI Increase and One House Destroyed Base Levy for 2011 Tax year 2011 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, $ 400,000 $ 100, No Increase to Levy from 2011 to 2012 but ONE home changes CPI 0% Tax year 2012 School Year Home Value EAV School Taxes Rate House 1 $ 150,000 $ 50,000 $ 14, House 2 $ 300,000 $ 100,000 $ 28, House 3 $ 300,000 $ 100,000 $ 28, House 4 $ 300,000 $ 100,000 $ 28, Totals $ 1,050,000 $ 350,000 $ 100, $ 100,000

18 Tax Example #4 With CPI 5% Increase One home is destroyed and students stay in district and New budget increase of 5% from previous year EAV = $50K Rate= 0.30 = $ 15,000 Rate= 0.30 = $ 30,000 Rate= 0.30 = $ 30,000 Rate=0.30 = $ 30, Total school cost for year is $ 105,000 budget with no other revenue

19 Tax Example #4 With CPI 5% Increase One home is destroyed and students stay in district and new budget increase of 5% from previous year Base Levy for 2011 Tax year 2011 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, $ 400,000 $ 100, % CPI Increase and Value Change from 2011 to 2012 CPI 5% Tax year 2012 School Year Home Value EAV School Taxes Rate House 1 $ 150,000 $ 50,000 $ 15, House 2 $ 300,000 $ 100,000 $ 30, House 3 $ 300,000 $ 100,000 $ 30, House 4 $ 300,000 $ 100,000 $ 30, Totals $ 1,050,000 $ 350,000 $ 105, $ 105,000

20 Tax Example #5 With CPI 0% Increase and 1 New House (EAV) Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Total school cost for year is $ 125,000 budget with no other revenue. New home has more students and therefore an additional part time teacher. The theory here is the additional property (house) will have additional children to educate which increases the school funding need. This property could also have been a TIF which the district LOST taxes on for the last 23 years. 20

21 Tax Example #5 With CPI 0% Increase and 1 New House (EAV) Base Levy for 2011 Tax year 2011 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, $ 400,000 $ 100, New Home to Levy from 2011 to 2012 CPI 0% Tax year 2012 School Year Home Value EAV School Taxes Rate $ 31,250 House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, New House 5 $ 300,000 $ 100,000 $ 25, Totals $ 1,500,000 $ 500,000 $ 125, $ 125,000

22 Tax Example #6 With CPI 0% Increase and 1 New House (EAV) Rate= 0.20 = $ 20,000 Rate= 0.20 = $ 20,000 Rate= 0.20 = $ 20,000 Rate= 0.20 = $ 20,000 Rate= 0.20 = $ 20,000 Total school cost for year is $ 100,000 budget with no other revenue. New home has no students and therefore no increase to the budget. This rarely happens due to annual budgetary needs of a district. Raises, increases in capital projects, energy costs as well as additional state mandates increase budgets for school district. 22

23 Tax Example #6 With CPI 0% Increase One Home is New and No Increase to the Levy from Previous Year Tax year 2011 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, $ 400,000 $ 100, New Home to Levy from 2011 to 2012 CPI 0% Tax year 2012 School Year Home Value EAV School Taxes Rate $ 25,000 House 1 $ 300,000 $ 100,000 $ 20, House 2 $ 300,000 $ 100,000 $ 20, House 3 $ 300,000 $ 100,000 $ 20, House 4 $ 300,000 $ 100,000 $ 20, New House 5 $ 300,000 $ 100,000 $ 20, Totals $ 1,500,000 $ 500,000 $ 100, $ 100,000

24 Tax Example #7 With CPI 0% TIF Expires and Is Added to the EAV Rate= = $ 16,600 Rate= = $ 16,600 Rate= = $ 16,600 Rate= = $ 16,600 EAV = $200K Rate= = $ 33,200 Total school cost for year is $ 100,000 budget with no other revenue. TIF expires with no increase to school budget. This is an industrial example of a TIF that produces no students with a decreasing school budget projected. This rarely happens due to annual budgetary needs of a district. Raises, increases in capital projects, energy costs as well as additional state mandates increase budgets for school district. 24

25 Tax Example #7 With CPI 0% Increase One Home is New and No Increase to the Levy From Previous Year Tax year 2011 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, $ 400,000 $ 100, New Home to Levy from 2011 to 2012 CPI 0% Tax year 2012 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 16, House 2 $ 300,000 $ 100,000 $ 16, House 3 $ 300,000 $ 100,000 $ 16, House 4 $ 300,000 $ 100,000 $ 16, TIF 5 $ 600,000 $ 200,000 $ 33, Totals $ 1,800,000 $ 600,000 $ 100, $ 100,000 25

26 Tax Example #8 With CPI 0% TIF Expires of a House Development and Is Added to the EAV Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Rate= 0.25 = $ 25,000 Total school cost for year is $ 150,000 budget with no other revenue. The two houses increase the student count by 6 which requires a larger budget. 26 This is a scenario that occurs rarely with TIF s, but does happen in areas of large growth of housing in a district.

27 Tax Example #8 With CPI 0% Increase One Home is New and No Increase to the Levy From Previous Year Totals $ 1,800,000 $ 600,000 $ 150, Base Levy for 2011 Tax year 2011 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, $ 400,000 $ 100, New Home to Levy from 2011 to 2012 CPI 0% Tax year 2012 School Year Home Value EAV School Taxes Rate House 1 $ 300,000 $ 100,000 $ 25, House 2 $ 300,000 $ 100,000 $ 25, House 3 $ 300,000 $ 100,000 $ 25, House 4 $ 300,000 $ 100,000 $ 25, New 5 $ 300,000 $ 100,000 $ 25, New 6 $ 300,000 $ 100,000 $ 25,

28 Eight Scenarios Show EAV and Rate Correlations Taxes will be collected as a dollar value Dollar value is determined by total EAV Your tax bill is determined by your EAV as compared to the total EAV in the taxing district Taxing districts include many public organizations City/School/Park Districts/Forest Preserves/County/Pension Plans/Mosquito abatement/junior College/Police/Fire/Library 28

29 PTELL The Tax Cap All schools and park districts are tied to the tax cap. Some cities and villages have passed a home rule which allows them to levy greater than the CPI. PTELL which initially included only the collar counties of Chicago (DuPage, Kane, Lake, McHenry, and Will) when it was passed in 1991 was subsequently extended to Cook in 1994 (Illinois Association of School Administrators. 2008). Ultimately, all Illinois counties were given the option to extend PTELL to property in their counties although not all chose to do so. 29

30 History of PTELL Reference site: Year % CPI Increase December CPI-U from Prior Year % PTELL Limit Levy Year Year Taxes Paid (5% for Cook)

31 What is a TIF? TIF is a tool to use future gains in taxes to finance current improvements (which theoretically will create the conditions for those future gains). When a public project such as a road, school, or hazardous waste cleanup is carried out, there is often an increase in the value of surrounding real estate, and perhaps new investment (new or rehabilitated buildings, for example). This increased site value and investment sometimes generates increased tax revenues. The increased tax revenues are the "tax increment." Tax Increment Financing dedicates tax increments within a certain defined district to finance debt issued to pay for the project. TIF is designed to channel funding toward improvements in distressed or underdeveloped areas where development might not otherwise occur. TIF creates funding for "public" projects that may otherwise be unaffordable to localities. 31

32 TIF s Have Allowed Municipalities to Offset Tax Cap Expenditure increases are not always tied to the CPI which caps revenue TIF s that expire offer some relief when addressing the annual budget without burdening the current tax payers 32

33 Bottom Line on EAV and Taxes Total EAV is a moving target Corporations get a change at board of review and they can easily reduce their EAV by $ 5 million which gets added to other taxpayers bills Residential appeals which are granted negatively impact tax bills of all other taxpayers The three year average in the formula is mis-leading to people who see a jump in their assessors note on their new EAV One tax bill is then calculated on the TOTAL current EAV to come up with a rate with the taxes that are extended to the taxpayers 33

34 Understanding the Assessment Process The objective of this portion of the presentation is to explain the assessment, equalization and appeal processes. Discuss information available to taxpayers on the web and answer related questions. This was borrowed from a presentation by Marty Paulson Chief County Assessment Officer 34

35 What Sales Will Be Used to Determine 2012 Assessments? The sales that occurred in 2009, 2010 and This should show a moderating in assessments, they will rise some, yet not much in comparison to recent years. 35

36 Role of the Chief County Assessment Office Evaluates the township assessor values. Applies local equalization to level the tax costs between townships. Notify taxpayers of their new assessments. In Lake County, the CCAO staff serves a dual role as support to the Board of Review. Make information available to taxpayers on the web. Defends Board of Review decisions at the PTAB. 36

37 Reasons for Appeal of an Assessment The assessor has placed a market value estimate on your parcel that is higher than actual market value. The assessment is based on inaccurate parcel characteristics. The assessment is higher than those of similar neighboring properties (uniformity). 37

38 Recommended Types of Evidence An Appraisal Real Estate Transfer Declaration or Other Sale Evidence List of Recent Sales of Similar Properties Photographs Characteristic Information on Comparable Properties Copy of Property Record Cards 38

39 The Current Real Estate Market What Happens if a Sale in 2007 or 2008 is Less Than the Assessment on a Given Property? In most instances the Board of Review will recognize an arms-length sale after January 1 as the best evidence of market value for They will also recognize sales in 2007 as good evidence of value for

40 Advantages of a Property Tax Local administration Locally spent Opportunity for taxpayer input & participation Error correction Stable Predictable way to fund local government services. 40

41 Disadvantages of the Property Tax Ability to pay not considered Difficult to understand formulas, timing, multiple participants Lump sum tax Uniformity vs. Market Value The inequity of funding between districts The haves and haves not 41

42 Steps for a School District to Set Levy Amounts Prepare a spreadsheet that includes the current levy amounts Project the cost increases in each fund for next fiscal year Project New EAV and TIF EAV and calculate a dollar levy increase Calculate the CPI from the previous December for a dollar levy increase Calculate the debt for Bond and Interest Run a high and estimated calculation to ensure that no new EAV is missed 42

43 CPI used for Levy CHICAGO CONSUMER PRICE INDEX The following represents the increase in the Consumer Price Index for the 12 month period preceding each date. The figures used are provided by the U.S. Department of Labor and represent the cost of "all items" for the U.S. city average. Chicago All Items US City Average Month Year for all Urban Consumers for all Urban Consumers August % 1.1% September % 1.1% October % 1.2% November % 1.1% December % 1.5% January % 1.6% February % 2.1% March % 2.7% April % 3.2% May % 3.6% June % 3.6% July % 3.6% August % 3.8% September % 3.9% October % 3.5% November % 3.4% December % 3.0% January % 2.9% February % 2.9% March % 2.7% April % 2.3% May % 1.7% June % 1.7% 43 July % 1.4% August % 1.7%

44 Other Levy Stages Put together a supporting document to the Superintendent and Board of Education Be realistic in your estimates Look at fund balances to address previous year deficiencies and corrections Confirm estimates of new EAV with assessors offices 44

45 Other Items That Affect the Board and Administration Must publish Truth and Taxation and hold meetings with public forum (only if over 5%) Continue to try and explain all of the variables that determine the Levy Hopefully you will have more information after this presentation and a better understanding yourself Explain that the Levy for December of 2012 is for the taxes collected in 2010 and fund the School year This Levy will most likely be lower than presented and requested due to the unknown factors of EAV 45

46 Potential Negative Impacts After levy is approved, one could potentially see a collection rate much lower. Example: Your levy was approved for and additional $ 500K. However, a PTAB was settled from a prior tax year and will receive $ 100K. Your collections for the current tax year will be $ 400K 46

47 Tax Rates Vary From Each Municipality in a County. 47

48 Variations of Tax While the school district tax rate stays constant among different communities, the total tax rate will vary by reason of different services and rates for other local governmental units. Variables could include referendums or new debt structures 48

49 A single school district rate is the same through different municipalities that cross your district who have different total rates that they collect 49

50 A single school district rate is the same through different municipalities that cross your district who have different total rates that they collect 50

51 What You Should Have Learned School district levies are tied to the previous Decembers CPI and new property EAV. The CPI portion is capped at 5%. The local assessors value is a fraction of a larger EAV number that determines the taxes Large appeals to EAV have an affect on the total EAV which can raise taxes 51

52 What You Should Have Learned The levy is a complicated process that includes several different government agencies to determine a tax bill If a persons individual EAV is lower, that does not necessarily mean their tax bill will also be lower Debt or Bond and Interest rates that are passed by the voters are NOT included in the rates for taxes 52

53 True False Test Checking for Understanding If the school district Levy is for 3.0%, a residents tax bill will only go up 3.0% If the CPI is 1.5%, that is the maximum increased dollars a school district can increase excluding new EAV/Growth If a major corporation goes under and leaves a taxing district, the entire tax bill will be paid by the remaining tax payers the next year If a new housing project is built, it will not affect the levy of a school district 53

54 True False Test Checking for Understanding The local township assessor calculates how much I owe in taxes My school district has 5 different communities and all of our tax bills raise the same amount every year Once my assessor sets my value, I can follow an appeal process School district s in Lake County cannot raise the levy over 5% due to a tax cap 54

55 True False Test Checking for Understanding If a TIF matures in December of 2012, a district must claim that as new property/eav that year. If they do not, that EAV number does not generate revenue above the CPI levy number in future years. The EAV set by the local assessor uses a three year average of my home/land value The county assessor applies an equalization factor to all townships so that the county has equalized growth 55

56 True False Test Checking for Understanding The school district is the only organization that raises taxes on my bill The local assessor is my friend when trying to figure out my assessed value If I am a senior citizen, there are special incentives for my local taxes If all taxing bodies paid off their debt, my tax bill will most likely reduce is price 56

57 Q & A 2012 Property Tax Levy 1. What is a Levy? The amount of money a school district requests from property tax. 2. What is an extension? The process in which the County Clerk calculates the tax rate needed to raise the revenue (Levy) certified by each school district in the County. The total extension is the product of the district s EAV multiplied by its calculated tax rate and is equal to the total property tax billings on the district s behalf. 3. What is The Truth In Taxation Act? Legislation approved and effective July 1981 that provides procedures for Public Notice and Public Hearings on Tax Increases greater than 105% of the prior year's extension. 4. What is The Property Tax Extension Limitation Law? The Property Tax Extension Limitation Law, commonly referred to as "TAX CAP," limits the increase in property Tax Extensions to 5% or the Consumer Price Index (CPI), whichever is less, not counting new construction or Bond & Interest Obligations 5. Why is the District proposing a levy which is higher than the limits of the Property Tax Extension Limitation Law? Because under The Property Tax Extension Limitation Law if districts under Levy, it is impossible to recapture the lost revenues. As of today, two very important facts are unknown to the School District: (1) The tax rate determined by the county assessor (2) The New Construction in the District (New EAV) 57

58 Thanks For Your Time We hope that this has been helpful This presentation will be posted on the Township High School District #113 website should you ever need to reference it in the future Tammie Beckwith-Schallmo PMA Financial Barry Bolek, CSBO District #113 Special thanks to you for attending and learning 58