Thanks to State Rep. Allen Skillicorn, McHenry County Blog shares a memo from the Legislative Research Unit comparing the real tax relief from the 1974 Resource Equalizer State Aid to Education law with the non-existent tax relief in this year’s legislation.

Such a let down from the “tax freeze” Governor Bruce Rauner ballyhooed.

The research is by Senior Research Associate Sarah E. Barlow.

1973 Law

The 1973 law added a property tax rollback provision to the school aid formula. Districts could choose to continue having their state aid calculated under the previous formula, or use the new formula–commonly called the resource equalizer state school aid formula. FN2

The resource equalizer formula guaranteed that each district that levied a property tax at the rate recommended in the School Code would get at least $1,260 per student annually for its educational program, as the sum of

(1) its property tax revenue plus

(2) state aid.

The state aid would be the difference between $1,260 per student and the district’s property tax revenue.

The $1,260 amount was the product of multiplying a ‘guaranteed’ tax base per student (explained below)by the recommended tax rate for that district type: FN3

District

What we above described as the ‘guaranteed’ tax base was not, of course, a guarantee that any district would actually have any particular amount of taxable property per student.

Rather, the formula guaranteed that if a district levied (and collected) at least the recommended tax rate for its education fund, it would get a total of at least $1,260 per student each year from its property tax revenue plus resource equalizer state aid.

School districts were required to reduce their combined tax rates over 4 years if those rates exceeded the recommended percentages (3% for unit, 1.95% for elementary, and 1.05% for high school districts).

The reduction in each year was to be one-fourth of the amount by which the district’s combined rate exceeded its limit. FN4

But a district could exceed the rate limits to finance innovative programs, research, or experimental programs if authorized by referendum or school board resolution.

In addition, districts whose local plus state revenue exceeded $1,260 per student before June 30, 1973 were not required to reduce their spending per student to $1,260. FN5

The provisions requiring reduction of tax rates that exceeded the recommended levels were repealed in 1976. FN6

2017 Law

P.A. 100-4657 addresses property tax reduction in at least three ways, described below.

More State Funding for Lower Taxes in the Formula

The funding formula enacted by P.A. 100-465 is different from the 1973 formula described above in two relevant ways:

(1) Under the new formula, an “adequacy target” is calculated for each district, seeking to represent the cost of educating its students based on factors specific to that district.8 The assumption behind the 1973 formula was that the same amount ($1,260) was adequate for educating every student.

(2) The new formula adds a district’s local capacity (the amount it is assumed to be able to raise in taxes toward its adequacy target) to the amount of state funding it receives, to calculate how close it is to its adequacy target. The formula allocates new state funding to districts that are farthest from their adequacy targets. FN9 Local capacity differs among districts because it takes into account actual tax receipts. Under the 1973 formula, a tax rate for each type of district was assumed.

The calculation of local capacity under the new formula appears to include an incentive for districts with high tax receipts to lower their tax rates.

A local capacity target is calculated for each district–basically the amount the district would ideally contribute toward its adequacy target, based on its equalized assessed value and a comparison of all districts in the state. FN10

For a district whose actual property tax receipts are below its local capacity target, the formula uses the local capacity target. In such a case, there will be a gap between the district’s actual receipts and the receipts the formula assumes that it gets, unless the district raises taxes to its target leve1.11

By contrast, if a district’s actual receipts are above its local capacity target, the formula uses an adjusted figure that is between the actual receipts and the target.

Thus, the district gets more state funding than it would if the formula used its actual receipts–but less than if it were taxing at the target level. (The adjustment is based on how far a district is from its adequacy target. So districts that tax at high rates, but are still far below adequacy, get the largest downward adjustment toward their target level, and thus more state funds.) FN12

Essentially, it appears that a district can maximize its state funding by taxing at its local capacity target.

The 1973 law addressed the goal of getting districts to tax at the recommended level by requiring them to do so-­ although the 1976 repeal of that requirement may have pre­vented it from taking effect fully.

State Grants to Reduce Taxes

Subject to appropriation, the Illinois State Board of Education (ISBE) is to make grants to eligible districts that reduce their property tax extensions. FN13

A district whose adjusted operating tax rate (the sum of the rates of property tax that it levies for all its funds, with some adjustments) is above a threshold rate calculated by ISBE will be eligible for a grant. FN14

The grants are to replace a portion of the amount of reduction in a district’s aggregate tax extension.

Reductions for purposes of calculating a grant are limited to 1% of a district’s equalized assessed value for a unit district; 0.69% for an elementary district; and 0.31% for a high school district.15

To determine a district’s grant amount, the amount by which the district agrees to reduce its property tax extension will be multiplied by the lesser of

(1) the amount by which its tax rate exceeds ISBE’s threshold rate or

(2) the “property tax multiplier” (1 minus the square root of the district’s “local capacity percentage”–basically, the percentage of its adequacy target that comes from local taxes). FN16

The property tax multiplier appears to have the effect of sending higher grants to districts with less local capacity.

For instance, under that provision in the formula, a district with 60% local capacity would get a grant of about 23% of its extension reduction, while a district with 10% local capacity would get 68%.

Thus, districts that tax at relatively high rates but still do not collect much in property taxes (typically due to low property values) will likely benefit the most from the grants.

The target for funding the grants is $50 million per year starting in fiscal year 2019.17

Referendum to Reduce Taxes

In any district whose current state funding, plus local tax collections, exceeds 110% of its adequacy target, 10% of the district’s registered voters can petition for a referendum at the next consolidated election, asking whether to reduce its school property tax extension for the next year.

Any such reduction cannot reduce the extension to less than 90% of the previous year’s extension; nor may a reduction cause the district’s percent of adequacy to fall below 110%.18 A majority of all votes cast on the proposition is required to pass it.

Once the proposition is submitted to voters, another one can­ not be submitted again at either of the next two consolidated elections.19

We hope this information is helpful. Please let us know if you need anything further.

Foot Notes

1. P.A. 78-215 (1973).
2. P.A. 78-215, amending Ill. Rev. Stat., ch. 122, sec. 18-8.
3. P.A. 78-215, amending Ill. Rev. Stat., ch. 122, sec. 18-8.
4. P.A. 78-215, amending Ill. Rev. Stat., ch. 122, sec. 18-8.
5. P.A. 78-215, amending Ill. Rev. Stat., ch. 122, sec. 18-8.
6. P.A. 79-6th S.S.-1 (1976), amending Ill. Rev. Stat., ch.
122, sec. 18-8.
7. P.A. 100-465 (2017), enacted by S.B. 1947 (Manar­ Lightford-Barickman-Rezin-N.Harris-Davis-Pritchard­ Currie-Bourne).
8. P.A. 100-465, adding 105 ILCS 5/18-8.15(a)(2)(A).
9. P.A. 100-465, adding 105 ILCS 5/18-8.15(a)(2)(B) to
(a) (2) (D).
10. P.A. 100-465, adding 105 ILCS 5/18-8.15(c)(2).
11. P.A. 100-465, adding 105 ILCS 5/18-8.15(c)(1).
12. P.A. 100-465, adding 105 ILCS 5/18-8.15(c)(1) and (c)(3); Funding Illinois’ Future, “Senate Bill 1: The Evidence­ Based Model for School Funding” (PowerPoint presentation, slide 12), downloaded Sept. 15, 2017 from Funding Illi­ nois’ Future Internet site; and “School Funding Commission Property Tax Working Group” (PowerPoint presentation,
slide 6, Jan. 3, 2017), downloaded from State Board of Ed­
ucation, Illinois School Funding Reform Commission Inter­
net site.
13. P.A. 100-465, adding 105 ILCS 5/2-3.170(b).
14. P.A. 100-465, adding 105 ILCS 5/2-3.170(c) and (e).
15. P.A. 100-465, adding 105 ILCS 5/2-3.170(h).
16. P.A. 100-465, adding 105 ILCS 5/2-3.170(a) (definition of
“property tax multiplier”) and (h).
17. P.A. 100-465, adding 105 ILCS 5/18-8.15(g)(9).
18. P.A. 100-465, adding 35 ILCS 200/18-206(a).
19. P.A. 100-465, adding 35 ILCS 200/18-206(c).