Rural Woodstock Tax Analysis

A friend of McHenry County Blog offers this analysis of Woodstock’s rural tax rates:

Wdstk tax rates 2011-14

These are the past 4 years of tax rates; that is, the percentage taken of 1/3 of the assessed fair market value of taxpayers’ homes.

Tax RATE for taxpayers is 1/3 of above figures; full tax rates are on EAV, and EAV is 1/3 of fair market value.

So for example, the individual tax rate for 2014 tax bill was 11.03/3=3.676%. That means that:

.03676 x (yourhomevalue)=(yourtaxbill)

Tax RATES are a function of 2 things:

  1. DOLLAR AMOUNT of taxes owed by property owner
  2. divided by ASSESSED FAIR MARKET VALUE of property.

As your home value SINKS, your tax RATE rises.

As the amount of money demanded by law to retain legal ownership of your home RISES, your tax RATE rises.   [This will happen until tax districts bump up against their tax rate maximum limits, as the McHenry County Conservation District has.]

Tax RATES here have been rising to-and-at extraordinary RATES compared to other communities in Illinois and other States in the United States.

Tax RATES are a good way to compare what homeowners are required to pay in order to retain legal ownership of their homes in different communities in Illinois, or in different States of the United States of America.

For example, California passed Prop 13 which limits tax RATES to 1% of assessed home value. (Go look at your own tax bill and compare what it would be if your tax RATE were maximum 1 %!!!)

Wdstk tax rates, rate of rise
RATE AT WHICH OUR TAX RATES HAVE RISEN has exceeded 10% for several years.

Rate rises have been

  • 2011 – 13.59%
  • 2012 – 16.82%
  • 2013 – 11.86%

Rate of rate rise between 2014-2015 will be published soon.

Let us extrapolate the chart to guess what our tax RATE might be in the near future.

Because tax RATES have risen at well above 10% per year for the period of 2011-2014, we may assume they will continue to do so.

Tax LEVY (amount demanded by taxing bodies) has not decreased, and home values have steadily fallen.

Tax House McH Split 2013

2013 division of the property tax in McHenry County.

Tax levy will not fall until expenses are cut, and local taxing bodies have been praising themselves just for holding INCREASES at what they consider ‘low rates’.

It is safe to assume that taxing bodies do not have intention to cut expenses.

Rising home values would lower tax RATES (because tax RATE= tax AMOUNT divided by home value.

Increasing the denominator lowers RATE).There is a theory that home values might increase.

Why should that happen? When homes can be bought all over America where tax rates are 1.4% average, and NOT rising at over 10% per year, why would buyers bid up homes in this County?

As rental property investors are increasingly the only willing buyers for homes in our County (at 4% tax rate), and investors aggressively seek downward revisions in assessments, the EAV must continue to fall.

Rental property investors seek returns in excess of costs, and costs may be shorthanded as:

Mortgage interest rate plus property tax.

Now, that is roughly 4% plus 4% which equals 8%.

That means an investor buyer of a $200,000 housing unit must get .08 x $200,000=$16,000 per year ($1333 per month) rent.

We are about there now in this area, so if mortgage rates rise, or as tax rate continue to escalate, even investors paying cash for homes at foreclosure prices will not be interested buyers.

Wdstk tax rates extrapolated through 2025

The chart above shows that if local taxing bodies manage to lower tax levy increases in conjunction with a slower rate of home price decline to be only 10% rising rates per year, our property tax RATES will exceed 10% of our home value within 10 years (Remember, the Full tax Rate divided by 3 is homeowners’ property tax rate).

We have the first 4 years of known data reflected on this chart.

For example, on a $200,000 home, a 10% tax RATE would mean an annual tax bill of $20,000. (In California, with a tax RATE cap of 1%, a $200,000 home is only taxed at maximum of $2000).

10% tax rate will probably be achieved by crashing home prices (a $200,000 home now paying a 4% tax rate ($8000) crashing in price to $80,000 would pay the same $8000 taxes, but at a tax rate of 10% rather than 4%).

Two ways to lower tax RATE:

  • spend less
  • raise home values.

As is it seem impossible to raise home values while tax RATES are nearly three time the national average rate, only decreased spending will arrest the death spiral for our home values.

(Commercial real estate is different; see examples of prices paid for real estate on Randall Road, and research TIF [Tax Increment Financing] tax dollar giveaways by County/Municipal officials to understand why commercial real estate holds its value. The real estate which is doomed is the real estate which pays most of the property taxes.)


Comments

Rural Woodstock Tax Analysis — 14 Comments

  1. This is nice work. The schools are clearly the main consumer of property taxes, and I would point out a few facts about them.

    First, there is a fairly substantial variation in how much local school districts spend per pupil with no significant difference in test scores or graduation rates.

    Second, there is an even greater variance in how school districts spend money. For example, the average salary in D155 is close to $100,000 while it is less than two-thirds of that at Richmond-Burton CCSD 157. Yet Richmond-Burton actually spends more per pupil!

    Third, the school districts are all declining in terms of enrollment, and yet each year they increase their tax levy to the max, meaning the amount spent per pupil is rising faster than the rate of inflation. And this is WITH the state paying the bulk of the retirement costs.

    And they ALL spend much more per pupil than school districts in most states, more than the school districts in suburban areas around other large cities in states such as Michigan, Arizona, and Colorado, all of which have robust charter programs.

    In short, there is conclusive evidence that the ALL of the school districts could find ways to save money if they were so inclined.

    The problem is that they are NOT so inclined because the board members are almost all cheerleaders who believe, despite the evidence, that more spending equals better education.

    We absolutely need new voices on our school boards, taxpayer watchdogs, people who ask for evidence of value for dollars spent, skeptics rather than cheerleaders.

    This is the next frontier in reining in government.

  2. This is a deceptive comparison.

    The effective tax rate on our properties is not because our governments are asking for more money, it’s because all property values drastically dropped from 2007 – 2014 and the need for government revenues remained the same.

    Extrapolating a 10% tax rate increase per year over the near future only makes sense if you assume that home prices will continue to drop steadily over that time period. No one thinks that’s going to happen.

  3. Excellent letter Steve. I totally agree.

    While I am pro education, they (school districts) MUST do a better job of controlling costs.

    Thank you for your insight!

  4. Wouldn’t great first step be consolidating some of the districts and reduce the duplication of administrators that are so many steps away from the students.

    How many districts do we need in McHenry County?

  5. Just looked at the http://emma.msrb.org website to see what fresh financial burden is to be inflicted upon Woodstock D200 taxpayers.

    After finding a 2006 Capital Appreciation Bond in which D200 borrowed about $14 million for less than 20 years and will pay $50 million in interest for that $14 million loan, it seemed to me that this School Board has an appetite for exotic financial instruments.

    There is a (new?) line item, without issue date or amount (but with a maturity date 2022):

    ‘ROCS and ROLS’

    I believe these are ‘ratchet options” (or ‘cliquets’) which would enable seller to collect a premium today in return for the right to buy something in the future at a strike price to be determined later?

    Could that ‘something’ be the crazy-profitable (to investors) CABs?

    And is this a case of that sneaky cash-out re-fi gizmo we are afraid will happen/is happening with MCCD and other taxing bodies?

    A way to obtain cash today in (legal but unethical) circumvention of statutory borrowing caps?

    This sort of exotic derivative might be dandy in the hands of trained professionals, but the D200 debt burden indicates that we do not compare favorably by any metric I can find.

    They spend 75% more than Illinois State average on debt service-as-a-percentage-of-budget, and the stated debt load is $118 million NOT including more than $30 million of accrued, unpaid, interest.

    The district debt as a percentage of total estimated market value of our real estate is stated at 5.23%, but if you consider the unpaid accrued interest liability in addition (which is not evidently required by law to be disclosed on these public financial statements), I’m guessing another half-again as much…so that means 7.5% of our home values is pledged collateral for OLD debt that keeps getting rolled forward and enlarged.

    AND (Mark!) let’s not forget the unfunded pension liability on top of all that!

    Anybody out there we can turn to for help?

    There are 47 bond issue listings for D200(other local school districts have bond listings in single digits).

    CUSIP number for D200 is 581158.

    http://emma.msrb.org

  6. Interesting information regarding consolidation; it appears we’re held hostage by the specter of a union driving up payroll expenses.

  7. It all comes down to mismanagement.

    The school spendings must be controlled.

    Bruce you are right people are going to have to get a hold of this.

  8. Schools may need money to run but who or what doesn’t?

    My question is why do seniors on disability, pensions or Social Security pay the full tax rates for the rest of their lives?

    Is it fair a 65 year old taxpayer still be overpaying?

    Yes, I have 2 grown daughters who graduated over 20 years ago.

    I paid for them in school then then again was really actually paying for previous families along with my own.

    I just feel that I should not pay the full cost for schooling.

    The good schools help the community for sure, but senior residents should only pay the full costs for the services they use.

  9. Consolidating school districts is rarely results in savings for suburban taxpayers, for man reasons.

    The major expense in a school district is for teachers, not administrators.

    Consolidating districts results in a larger, and thus a more powerful, teacher union, especially beneficial for collective bargaining negotiations.

    And most suburban school districts have at least one additional union, for the support staff, and some districts have a thiurd or fourth or fifth union, such as bus drivers, cafeteria workers, maintenance, etc.

    But that is current expenses, which are somewhat visible, but really the taxpayers do not have a good handle on all the perks and spending in most districts due to a variety of reasons.

    The more hidden costs are future costs in the name of bond payments, and the even more hidden unfunded retirement benefits in the name of pension and retiree healthcare.

    So while it is important to understand the above, that is just a start.

    The taxes will be hiked more or services cut or benefits cut or fees raised or some combination thereof due to bond payments, unfunded pensions, and unfunded retiree healthcare.

  10. Fedor, you are partly right and 100% wrong.

    First, the author of this piece makes clear it is about tax rates.

    Second, the property tax burden is much higher here in Illinois than in surrounding states, and that is not just a function of the rate.

    McHenry County is in the top 1% of all counties in the nation in terms of its property tax burden.

    And you are absolutely incorrect when you say governments have not asked for more.

    The school districts in McHenry County seek the maximum increase every year despite the fact that enrollment is declining, so their expenditures per pupil is going up faster than the rate of inflation.

  11. Regarding the Woodstock District 200 bonds, track them on a spreadsheet, ask questions (Superintendent, Business Manager or whomever is in charge of finances), and submit FOIA requests for documents to the district for information they will not otherwise share.

    There are all sorts of ways all sorts of different people can make generous profits from selling bonds to school districts or any taxing district.

    One area to look, were the bonds negotiated or competitively bid.

    Competitively bid almost always results in the lowest price for taxpayers.

    At least once a year most districts have a financial adviser give a presentation on the district finances.

    Be sure to obtain from the school district any financial presentation given at a school district board meeting (powerpoints, any handouts, etc.).

    Most school districts have no watchdog.

    Most school board members are not knowledgeable about bonds.

    To often the school board members trust the experts in the bond industry to deliver the best value to the school district.

  12. McHenry County Tax Bill Lookup

    http://www.mchenrycotaxweb.org/cgi-bin/taxbill.pl

    Search by Parcel Number, Owner Name, or Property Address.

    Divide “Total Current Year Tax Due” and “Fair Cash Value.”

    Total Current Year Tax Due / Fair Cash Value.

    The resulting percentage varies depending on municipality and unincorporated area, and the parcel number or address in each area.

    Maybe 3.4% – 4.0% for McHenry County.

    That’s the property tax percentage of the property’s actual value.

    That’s the kind of data that should be analyzed for TIF districts.

    Take each parcel of the Lakewood TIF, and enter property tax data on a spreadsheet.

    One note when you look at property tax bills.

    “Pension” = IMRF pensions (Illinois Municipal Retirement Fund).

    Thus IMRF is paid primarily through property taxes.

    Municipal Police and Fire (aka Downstate Police and Downstate Fire) are also paid for through property taxes, but do not show up as a line item on your property tax bill.

    Downstate Police and Downstate Fire are individual funds for each taxing district.

    IMRF is one large fund for all taxing districts.

    IMRF is much better funded than most Downstate Police and Downstate Fire.

    Teachers (TRS), University Employees (SURS), State Employees (SERS), Judges (JRS), and Legislators / General Assembly (GARS) are paid for largely through state revenues , such as state income taxes.

    So looking at taxes of how teacher / administrator pensions are paid.

    The Employee Contribution is paid largely through local property taxes (school districts also receive State revenue (largely General State Aid) and Federal revenue).

    The Employer Contribution is paid largely through local property taxes, but is only .58% (1/2 of 1%).

    The State Contribution (on behalf of the employer) is paid largely through state taxes such as income taxes.

    The Investment Returns is the largest “contributor” but since TRS is only about 40% funded, the returns are much less than it should be, and 100% of that shortfall falls on the State Contribution.

    So sources of revenues for teacher / administrator pensions are vast and varied.

    That’s part of the unfunded liability story of just one pension fund.

    Look at the story for all the public sector pension funds for which McHenry County taxpayers are responsible for.

    Most of those funds are listed above.

    Add to that the retiree healthcare funds.

    And it readily becomes apparent McHenry County taxpayers are in a very bad situation that irregardless of the resolution many people and probably most people will be upset.

    A crisis was created by elected politicians at the state and local level.

    The press, politicians, bloggers, non profit watchdogs (Better Government Association, For the Good of Illinois / Open the Books, Family Taxpayers / Champion News, Taxpayers United of America, Illinois Leaks / Edgar County Watchdogs) are not enough.

    We need a watchdog for every taxing district / state agency.

  13. Because of high tax rates and high debt levels in this area, there seems to be no driver to put a bottom under home prices here.

    The price point of local homes is such that the typical buyer can’t easily qualify for,conforming mortgage if they earn the median income for the area. ( that is solely due to tax rates almost three times national average; tax payments are factored into conforming loan eligibility calculation of 28% of income max to qualify).

    It’s a small pool of buyer as until,prices find a bottom.

    My friends who own an ornamental tree nursery tell me discretionary spending on landscaping have all but dried up in the past several years.

    Some people I know with rental property tell me that tenants are stressed about paying rent (paycheck to,paycheck).

    More than one contractor has remarked that “people are afraid to spend any money to fix up their homes”.

    Either they now can’t afford it, or they are afraid it would raise their assessment.

    So while home price devaluation velocity may slow, It seems likely to maintain downward trend.

    Investor buyers tend to get large lowered assessments, which has the effect of raising all other homeowners’ taxes anyway.

    Also, even if home prices stabilize, the taxing bodies are taking more money annually.

    There are statutory maximums but there are loopholes and exceptions.

    I’m willing to bet that local tax rates continue to rise at alarming rates.

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