Scott Curry Analyzes McHenry’s Real Estate Tax Policy

Retired business man Scott Curry is running for Alderman in McHenry. Earlier, you were able to read his thoughts in these two posts:

  1. Scott Curry Takes on McHenry Finances
  2. Scott Curry Argued Against Higher McHenry Taxes

On  November 17, 2014, he addressed the Council in his continuing quest to keep taxes down.

Below you can read what he said:

Mayor Low, City Council Members and City Staff:

Thank you for allowing me to address the Council this evening. The Finance & Personnel Committee has met twice recently and has decided to recommend to the full Council an increase in the property tax levy of 1.9%. This item will come before this Council in a couple of weeks.

As you consider this tax levy increase on your constituents, let me draw your attention to the following quote:

“For the last two years the City has approved and submitted a levy request that was equal to the levy adopted in 2010. This was an effort to be mindful of the economic climate and specifically, the related property tax burden on McHenry residents.”

Scott Curry and Andy Glab chat with Bob Anderson at John Hammerand's fundraiser.

Scott Curry and Andy Glab chat with Bob Anderson at GOP Christmas gathering held at The Cottage in Crystal Lake.

That quote came from the November 11, 2013 minutes of the Finance & Personnel Committee and from the November 18, 2013 minutes of the City Council meeting.

This statement was made by staff just prior to the Committee approving a recommendation for an over 5% increase in the property tax levy.

The quote was then repeated by staff before City Council just prior to Council approving the 5% figure.

In actual matter of fact the Council was about to do nothing over the prior three years to be mindful of the economic climate and property tax burden.

From 2009 to 2013, the Council had approved combined actual or proposed tax increases at or above the rate of inflation.

Inflation rate was -0.4% in 2009, followed by the Council approving a 3.1% levy increase for 2010.

In 2013, an over 5% increase request was approved effectively negating any supposed benefit to the tax payer for the 2011 and 2012 flat levies.

The 2013 inflation rate was 1.5%, less than a third of the proposed increase.

Over those years mentioned the average inflation rate had been 1.6% and yet Council would likely have approved a combined increase of over 8%, not exactly a break to the tax payer.

To the Council’s credit, a public hearing was held during the December 2nd regular Council meeting.

It was at that meeting, the Council found out that this proposed increase was adamantly opposed by all public present.

The eventual vote was 6 to 1 to leave the levy as is for 2013 and with most Council members reversing their earlier stance.

Here we are again.

Now you will be considering a 1.9% increase for 2014.

I have spent hours poring over Audit and Budget documents from 2008 to present to try to understand this desire to continually increase the tax burden on the public.

And I have at times been confused, not by the numbers – they are clear, but by the intent.

I am confused that the Council or staff would even consider a tax increase when they have already increased combined local property and sales taxes by 48%.

Yes, that is correct, 48%. This is to the tune of over $8 MM in the last five years.

I have been confused by the constant reference to the Police Pension Fund, in tax increase requests, as one of the major reasons for an increase.

Fully funding this does not, I repeat does not, cause a budgetary issue for the city despite what you are being told.

At best, the pension fund has resulted in increased obligations to the city of $2 MM over the same five years.

Accounting for this increase still leaves an excess of $6 MM in collected local taxes.

I have been confused by the constant use of budget numbers in documents to support a tax increase when actual spending numbers are available from the City’s Audit documents.

In fact, General Fund actual spending is running $1 – $1.5 MM less than the budgetary number year after year.

You should stop allowing the use of past budget numbers to support tax increases and future budgets.  [I would not that this is the process used by many local governments.  Budget numbers are often higher than actual expenditures.]

Any accounting professional worth their salt can accurately give you a current fiscal year-end estimate and upon which the following year’s budget could and should be based.

I have been confused by where that $1-1.5 MM was going.

Then I noted the increase year after year in the Unassigned General Fund Balance.

It too has been increasing at a yearly average rate of $1.5 MM.

It stood last year at $8.5 MM or 50% of General Fund spending and up from $2.5 MM just four years prior.

And, I project it will likely top $10 MM at the end of this fiscal year.

I am confused at this increase.

Why is this?

The Finance Council’s recommendation had been to maintain that number at 25-30%. A search of other municipalities yields that most recommend, and are within, a 2-4 month spending figure, i.e. 17-33%.

We are at 50% and heading toward 60%.

  1. there seems to be no good reason for this;
  2. there seems to be no specific goal stated to do this.
  3. where is the reference to this in any budget document?

I am confused.

The revenue intake by the city appears to be more than adequate for the need without a property tax increase for years to come.

Keep in mind the revenue sources that are generating the additional $1.5 MM exist now and will continue.

Stop the addition of monies to the Unassigned General Fund and you will have that $1.5 MM extra going forward.

So, I remain confused by this attempt to raise taxes on the residents when funding is more than sufficient.

However, I am crystal clear with the fact that enough funds are more than available.

Perhaps we should be looking at a tax rebate program instead.

I and many of your constituents, that I have spoken to, would ask that you, at a minimum, keep the tax levy flat for 2014 and then do not come back the following year.

Otherwise you are not, as the quote says, “mindful of the economic climate and specifically, the related property tax burden on McHenry residents.”

Please take the time to review the Audit and Budget documents for the City as I have done. Ask tough questions, keep an open mind and make your own informed decision.

Thank you for your time and attention. I am available to any Council member who would like to discuss this further.


Scott Curry Analyzes McHenry’s Real Estate Tax Policy — 5 Comments

  1. As of 2010 according to the COGFA Downstate Police and Fire study, McHenry owed its police pension fund $15 Million Dollars.

  2. Taxing bodies are looking at the problem backwards.

    The amount of dollars available to be taken without impairing property valuation should be determined first.

    First, the maximum sustainable property tax rate should be ascertained.

    Every public official should quantify that specific maximum rate, and justify it to the taxpayers whose money he is spending.

    Only emergency spending should be considered if it will cause the maximum tax rate to exceed an amount considered sustainable by the population.

    In Woodstock the tax rate is 4% of total home value.

    In McHenry it seems to be above 3%.

    There are two ways to lower tax rates: cut spending, or raise property/home values.

    I don’t believe it is possible for property values to rise when the property tax rate here is 200% to 300% of the national average tax rate of 1.4%.

    Here is one rationale for that belief:

    To qualify for a conforming mortgage loan, a buyer must show income such that no more than 28% of income will go to pay mortgage interest and principal, and property taxes.

    A $200,000 conforming 30 year mortgage loan at 4.1% interest rate would have a monthly principal&interest payment of $966.

    Additionally, at the national average property tax rate of 1.4%, the property tax escrow payment monthly would be $233.

    Total monthly payment in America would be $1199.

    In McHenry County Woodstock CUSD 200, with our 4% property tax rate, the property tax escrow payment monthly would be $666.

    Total monthly payment here, for the same mortgage loan, would be $1632.

    Income needed to qualify for a conforming mortgage loan, 30 year at 4.1%, is arrived at by multiplying monthly payment by 12, and multiplying by 1/.28 (to reflect 28% of income required to qualify for loan).

    So, in America at 1.4% property tax rate, $1199×12(1/.28)=$51,385.

    In McHenry County at 4% tax rate, $1632×12(1/.28)= $69,942.

    That is, to qualify for a conforming loan in McHenry County Il, where property tax rates are 4%, a buyer would have to prove 36% more income than he would to qualify for that mortgage in America at average property tax rate of 1.4%.

    This substantially reduces the pool of potential buyers for homes or property in this county.

    The high cost of carry for McHenry County property also discourages taxpaying new development of any kind.
    However there is NON- tax paying development being encouraged in the form of tifs and special enterprise zones.

    This will further increase the real tax dollar burden demanded of existing taxpayers, and tax rates for us should go even higher.

    At some tax rate it will be most advantageous for homeowners to plow under our dwellings and revert land to farming, or simply abandon the property like an underwater mortgage.

    Then taxing bodies will have to cease operations (absent a federal bailout).

    So, what is the highest property tax rate sustainable?

    At what tax rate is the destruction of the community assured?

  3. Since there was $15 Million owed to the McHenry Police Pension fund alone as of 2010, taxes certainly are not going down in McHenry.

    When people determine overall they are better off living somewhere else, and property taxes play a role in that, they move.

    For a lot of people that’s at retirement.

    That’s why a lot of property taxpayers have a lot of hidden bond debt service (payment schedule for bond principal and interest) and unfunded liabilities (amount that should be in the pension fund, retiree healthcare fund, etc. right now).

    Build today, promise today, pay tomorrow.

    By the time the bill comes due, the elected politicians are out of office, often collecting a pension.

    Your elected officials should be able to tell you the bond debt service and unfunded liabilities for their taxing district.

    Your elected officials should then be able to explain to you how to equate that to your future tax bills.

    Your property represents a tiny slice of that overall debt and IOU’s.

    That type of information should be on the taxing district home page.

    Or call the phone number and your property tax bill and ask the County that question.

    They don’t know the answer.

    Ask them who can tell you the answer.

    After you get the answers to your questions, track the information on a spreadsheet.

  4. It’s so disheartening whenever I review the tax situation in this county and our state. There are always numerous excuses and reasons to justify spending someone else’s hard earned money.

    I find it troubling that the driver of these expense is retirement pensions.

    Many civil servants, who get retire well before a traditional retirement age, relocate to a no/low tax state to avoid paying the very taxes their community is forced to pay to support their pensions.

    It’s probably not legal or possible with the established contracts, but I’d love to see taxes taken out of pension income for the municipality/state that pays it, regardless where the person decides to live.

    Obviously this is aligned with income tax versus real estate taxes.

  5. McHenry residents need tax relief and we need it now.

    You are taxing us out of our homes!

    This is insane!

    The people of McHenry must join forces and demand lower taxes.

    Enough is enough.

    We are paying more in taxes than the majority of homeowners in the USA!

    And for what? Our roads are horrible.

    Huge numbers of empty lease space from businesses leaving this City!

    What are you doing?

    We, the people need to rise up in protest NOW.

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