In my first session in the Illinois House of Representatives high school teacher Gene Hoffman sponsored the Resource Equalizer State Aid to Education Formula.
It passed and I voted for it.
The premise was one that property-rich districts found unacceptable.
That premise was that each school district in the state should have the same amount of money to educate their students.
There was a poverty kicker which gave more to Chicago and other districts with high concentrations of poor kids, but, other than that it actually did provide for equalization.
It did so by requiring those school districts–probably only elementary and high school districts–which were above a certain tax rate level to reduce their real estate tax take.
Naive that I was, I thought they would actually follow the law.
The high tax rate districts, including Crystal Lake’s, had other ideas.
They pushed for legislation in the next General Assembly to repeal the part of the law that required them to take property tax cuts.
They wanted to keep the new State Aid to Education resulting from the abundance of money coming from the income tax passed in 1969 under Republican Governor Richard Ogilvie, but were unwilling to give up their high property taxes.
And they got what they wanted–more State Aid, plus the same high real estate tax revenue.
So much for the “equalization” part of the formula.
In subsequent amendments to the formula there was always a “hold harmless” clause.
During the 1990’s when rural districts were losing students and suburban districts like Carpentersville District 300 and Huntley District 158 were rapidly gaining students, state education dollars went to subsidize empty seats in those rural districts, while suburban districts had to rely on increasing property taxes.
In the beginning of this blog back, which started in the fall of 2005, much was written about the District 300 rate hike. I believe a large part of the motivation for its passage was the State Aid to Education diverted because of state policy never to cut State Aid to Education to any district.
Mike Tryon
Steve Andersson
Barb Wheeler
Three area State Reps. have been named to study the current formula.
They are
- Steve Andersson
- Mike Tryon
- Barb Wheeler
If they take the egalitarian route that I followed in the 1973-74 session, local school folks will be screaming at the loss of State Aid.
However, most of the school districts these three House members represent have taken every dime they can get under the Property Tax Cap law.
The result, as Andrew Gasser first pointed out before he was elected to the McHenry County Board, is that McHenry County is in the top 30 counties in the United States of America as far as real estate tax burden goes.
Lower the property taxes or all of the businesses wll close and all houses will be foreclosed.
When education funding or cost per student statistics are tabulated by the Illinois State Board of Education or the Illinois Interactive Report Card or anyone else, the state contribution to the Teachers Retirement System (TRS) pension fund is not included.
This results in the under reporting of the true cost to educate children in Illinois.
Education funding includes pension funding which is primarily state funding.
State pension funding is a separate budget bucket separate from state General State Aid funding for education.
We will see if the Rauner administration can report the real education funding statistics to taxpayers.
The separation of pension funding from General State Aid, and the responsibility of educator salaries with school districts, educator employer portion of pension funding mainly with the state and not school districts, and legislative defined benefit hikes as pensions were already underfunded, has caused all sorts of problems.
Local suburban Chicago school districts provide generous salaries resulting in generous pensions and that tab for the underfunded pensions is paid for by taxpayers all over the state, not just local taxpayers whose school board hiked the salaries.
It is a dysfunctional broken system for which current taxpayers are not paying their fair share, rather indebting the very students /future taxpayers the system is educating.
The system was done for short term political reasons not long term fiscal reasons.
Please help taxpayers with legislation to reflect TRUE debt burden of school districts, so that the intended statutory debt maximum limits can actually be applied.
PLEASE, it only makes sense to include ALL accrued debt in the 13.8% of EAV statutory maximum borrowing limit.
When School districts engage in exotic financing such as Capital Appreciation Bonds, interest is owed but deferred, and so it isn’t reflected in net general debt figures.
For one example, in D200 there is a borrowing of about $14 million in 2006, a CAB. It doesn’t pay interest or principal until payment due in years 2023-2026.
Guess how much interest will be due on that $14 million loan?
$50 million dollars.
Principal=$14 million, interest= $50 million.
(Typically a <20 year loan at the time would incur about 66% of total loan amount interest. The "Payday Loan" capital appreciation bond is incurring 357% of loan amount interest).
Why would educated people sign up for a 'payday loan' when other financing was being obtained at normal rates?
Maybe because accrued unpaid interest doesn't show up in total debt of district, as applied to the 13.8% of EAV statutory maximum borrowing ability?
Only the principal debt amount is listed in total debt.
Accrued interest is not included.
If accrued interest were calculated on the 2006 capital appreciation bond, which pays 8.5% compounded interest, here is the formula:
1.085x$13,867,000= x ; x being the current accrued interest plus principal.
Repeat that for the number of years which have past.
In this case, 1.085x $13867000= $15,045,695 after the first year.
The second year, the debt will have risen to:
1.085x $15045695= $16324579. That continues every year until payout after 17-20 years from date of issue.
(Actually the true figures on interest will be higher, because the debt compounds semi annually, here is the calculation formula: A(t)=A0(1+R/n)to-the-power-of-n(t). A(t)=amount owed after t years. A0= Amount originally borrowed. R=interest rate. n= number of compounding periods per year.)
In this 2006 CAB, the $13867000 principal is included in total debt of district, but the district is not required by law to include the unpaid accrued interest.
As of end 2015, the accrued debt+interest will equal $31,353,052.
$31353052-$13867000= $17,486,052 of UNPAID INTEREST ACCRUING AT 8.5% annually!
Accrued but unpaid interest, which is as legal a debt obligation as the principal amount, is allowed to be "hidden" and not considered in the formula meant to protect taxpayers from school districts borrowing more than 1/3 of 13.8% of total taxable property values.
This school district is able to borrow $17,486,052 MORE than statutory cap because they are not required to include the accrued interest debt obligation as part of total debt.
Next year, when another $2665009 interest is due (that is, more debt burden to taxpayers) they would have had debt ceiling reduced that much further.
School Boards squeeze every penny out of statutory borrowing ability.
Current law rewards them for taking on debt obligations with exotic financial instruments which defer and accrue interest paid on borrowings—with terrible consequences for all the taxpayers in their district.
Please, won't some legislator recognize the inequity of the situation, and propose that ALL debt (including accrued unpaid interest on bonded debt) be included in public disclosure and included in the calculation of statutory borrowing limitations?