Everyone Deserves a Great Education. What are the long-term impacts of how Available Local Resources are calculated in SB1?

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1 What are the long-term impacts of how Available Local Resources are calculated in SB1? 1

2 PTELL Overview What is PTELL and why is it important? 2

3 PTELL limits how much Property Taxes can increase Because Illinois relies so heavily on property taxes and because real estate markets are so unpredictable and can fluctuate greatly from year to year, many counties in Illinois passed laws (PTELL) in the 1990 s limiting the amount that property tax revenue can increase by each year to match changes in the Consumer Price Index. 3

4 Which counties limit Property Tax increases? Below is a map of which counties (in blue) limit how much property taxes can increase each year with PTELL. PTELL Tax Capped (limit increases to change in Consumer Price Index) Half of the School Districts in Illinois limit the percent that property tax revenue increases to match the Consumer Price Index for that year. In PTELL counties, property taxes can increase even if property values decrease during that year. 80% of the students in our State attend Schools subject to PTELL. Non-Tax Capped Half of the School Districts in Illinois increase or decrease their property tax revenue in direct correlation to changes in their community s real estate values. 20% of the students in our State attend Schools not subject to PTELL 4

5 What are the advantages of Property Tax Limits? Below are the advantages that PTELL offers both homeowners and School Districts. PTELL helps control property tax increases for homeowners. What would the increased financial burden have been on property taxpayers during the real estate market boom in the mid 2000s? How many more foreclosures would there have been after the dramatic real estate market correction that led to the Great Recession if property taxes also spiked during the peak of the Great Recession? PTELL reduces the impact that fluctuations in real estate market values have on school district revenues. How many more School Districts would be in severe deficit spending today if property tax revenue rapidly declined at the same rate as the real estate market correction? 5

6 Historical Benefits of Property Tax Limits (PTELL) Below is a chart that shows how dramatic the real estate market boom and crash was in the 2000 s. The Great Recession would have been much worse without the stability that PTELL provides. 1. Homeowners would have seen large spikes (25%) in their property tax bills in a single year. 2. The Great Recession would have been even worse as dramatic tax increases would have increased financial strain on families and caused even greater foreclosure rates. 1. School Districts would have seen a loss in revenue of up to 40%, increasing the number of districts in deficit spending and forcing others into bankruptcy. 6

7 How does PTELL impact school funding? For PTELL School Districts, the General State Aid formula currently uses the lesser of the real EAV or the amount of property taxes that a School District can actually collect to determine Available Local Resources. 7

8 SB1 Proposed Changes How is the formula to determine Available Local Resources changing? 8

9 SB1 Proposed Changes Below are two key changes related to how Property Tax Limits (PTELL) will be factored into the SB1 proposed calculation of Available Local Resources. 1. Include an 85% rate floor on the PTELL adjustment The SB1 proposal will limit the gap that can exist between real EAV (market value) and PTELL EAV (how much tax revenue a School District can collect). 2. Fund the PTELL adjustment through a separate appropriations line item This proposed change allows the State to prorate the PTELL adjustment grant in the future. 9

10 What are the concerns? Below are concerns regarding the proposed changes in how Property Tax Limits (PTELL) factor into the calculation of Available Local Resources. 1. Simulations of the impact of SB1 do not factor long-term changes in property values due to reassessments, which may dramatically impact funding on a year to year basis The impact of this proposed change will not be seen in the SB1 simulation file that ISBE created because of tax and budget cycles. Property values were still declining in the simulation file (FY14). 2. The proposed changes will result in additional shifts in funding This proposed change will create significant holes in School Districts budgets because the State Aid formula will presume that the community has more wealth than what the School District can actually collect. This will result in an actual loss of total funding (state + local). 10

11 Sample impact of the proposed changes Below is an example of how the proposed changes will reduce School District funding in PTELL counties each year once a community s property value starts to recover. Example: Unit School District A is in tax capped counties. The school district has an EAV of $200,000 per student and a tax rate of $3.00. The districts generates $30 million revenues in property tax revenues. The following year, the consumer price index is 1%. As a result, the district increases its tax revenues by $300,000 (1% of $30 million). The county assessor covering School District A reassesses the property in District A up by 5%. Below are examples of what total funding from both the State and Local revenue would be with the current formula and the proposed changes. School District and Revenue Example Type of District Unit PTELL Yes EAV Per Student (5,000 students) $200,000 Tax Rate $3.00 Current GSA Formula $300,000 in additional local revenue from property taxes $300,000 decrease in GSA $0 change (in total funding of State + Local) 2014 Property Tax Revenue $30 million 2015 Consumer Price Index 1% Reassessed EAV (change in market value) 5% increase 2015 Property Tax Revenue $30,300,000 Additional Tax Revenue $300,000 Proposed Formula (85% rate floor) $300,000 in additional local revenue from property taxes $1.5 million dollars decrease in GSA $1.2 million dollars less (in total funding of State + Local) 11

12 Who will be impacted by the 85% rate floor? The proposed change to how Available Local Resources (ALRs) are calculated will impact all School Districts that are both subject to PTELL and dependent upon supplemental State Education Funding. Example of the impact that the proposed 85% rate floor on a School District that is highly dependent on State Aid to fund their schools. Per Student impact Real EAV $65,637 $65,093 $57,942 $75,245 $75,189 $80,606 $88,875 $91,610 $99,057 $60,105 PTELL EAV $53,204 $54,550 $55,663 $57,667 $59,749 $61,242 $63,833 $64,031 $65,760 $60,105 % Change in Real EAV -1% -11% 30% 0% 7% 10% 3% 8% -39% % Change in PTELL EAV 3% 2% 4% 4% 2% 4% 0% 3% -9% Loss Per Student with Current Formula $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Loss Per Student with proposed 85% Rate Floor in total funding per student State + Local $61 $18 $0 $148 $98 $172 $276 $327 $435 $0 Potential Loss if PTELL Grant is Prorated loss amount will vary based on % prorated $293 $249 $54 $415 $364 $457 $591 $651 $786 $0 12

13 Different Viewpoints What should Available Local Resources measure? 13

14 Public Policy Question It is important to look at different perspectives when discussing public policy questions. Below are two different viewpoints on how Available Local Resources (ALR) should be measured in the State Aid Formula. How should ALR be measured to determine a community s total wealth? One concern with the current PTELL adjustment grant is that although PTELL limits school revenues, it may be beneficial to taxpayers who would realize lower tax rates as property values rise. The PTELL grant recognizes that school revenues don t change relative to changes in property values, but does not recognize that PTELL can create benefits to taxpayers in communities with rising property values versus taxpayers in more stagnant communities. or How should ALR be measured to determine a School District s wealth if the PTELL actually limits the percentage of revenue a district can collect? The SB1 proposal would assume that a School District has more wealth than what the School District is legally allowed to tax on. This will create significant holes in School District budgets because of a loss in funding from the State that can t be captured locally. 14

15 Our Viewpoint Below is our position on how SB1 should calculate Available Local Resources (ALR) taking into consideration the overall intent of the bill and the fact that SB1 is just one piece to addressing how Illinois funds public education. ALR should measure the amount of revenue on which a School District can actually receive The intent of SB1 is to provide more State revenues to School Districts serving students most in need (low socioeconomic status, special education, minority, etc.) SB1 considers how much revenue a School District can raise locally and the minimum resources each weighted child is entitled to receive. SB1 is not intended to address funding adequacy or underlying issues with the Tax Code. By not addressing the State aid formula or the underlying tax code issues, this proposal will create significant holes in School District budgets and not guarantee a true funding level. If a PTELL rate floor is included in the final bill, then the bill should also include language to ensure that School Districts that have an above-average tax rate and that spend less than their fully weighted budget do not lose State funding with this proposed change. Note that the ideal solution would be to modify both the funding formula and the related tax code at the same time to ensure that all communities are making a sufficient local effort and that a community s ability to locally fund their schools takes into account other things including PTELL, TIFF, CPPRT and household income. However, this is not the intent of SB1 as it is currently written. 15

16 Next Steps Below are the next steps in bringing awareness to this proposed change and also in providing alternative recommendations for addressing our concerns with the proposed changes. 1. Recommendation We have submitted examples of our concerns and an alternative recommendation for calculating Available Local Resources (ALR). We are working to provide additional multi-year projections that can be used to evaluate the long-term impacts of this proposed change. 2. Stay engaged and help continue the conversation Please help by ensuring that your School District and State Legislators understand the long-term impacts of SB1 and its proposed changes to public school funding. 16