Breaking down school funding

By Jeffrey Gaunt and Catherine Edman
Daily Herald Staff Writers
Posted Monday, April 11, 2005

So you want to know more about school funding?

Let’s start with the basics.

Schools get the bulk of their funding from property taxes.

It doesn’t matter if you own a house, rent an apartment or own a business or a plot of land. In some fashion, you’re paying property taxes for schools.

In Cook, DuPage, Lake, Kane, McHenry and Will counties, a state-imposed tax cap limits how much more a district can collect in property taxes from one year to the next.

So, the tax cap limits how much you will pay.

The cap limits districts to annual increases of 5 percent, or the rate of inflation, whichever is less. Since the tax cap was put in place, the rate of inflation has been the limit.

So let’s say our school district collected $100 million in property taxes last year. This year, the rate of inflation is 2 percent. So our district can only collect $102 million that year.

Things change, however, when school officials say the district needs a tax-rate increase — something that must be approved by voters.

Let’s say they ask for an increase of 10 cents in the rate.

In their campaign to sell voters on the idea, school officials typically use a simple formula to show how much more they believe an average homeowner would pay under the rate increase.

They explain that a homeowner has a house that would sell for $300,000.

The county sets the assessed value of the home at $100,000 — or one-third its market price, for taxing purposes.

That number is the benchmark the county uses to determine the homeowner’s property tax bill.

The 10-cent rate is actually 10 cents for every $100 of assessed value. So you multiply 10 cents by 1,000 and get $100.

That’s the simple way to look at it and the method most districts employ.

If only it worked that way.

The truth is the formulas used for calculating your tax bill are much more complicated than that. And districts usually collect more than that $100 per year in our example.

Sum of the parts

Let’s go back to our $300,000 home.

When voters in this school district approve a 10-cent tax-rate increase, they are actually approving a 10-cent increase in the maximum rate of one of the school district’s several funds.

A fund is sort of like a bank account, and the district has separate bank accounts for different types of expenditures.

When school officials divvy up all of the property taxes they receive each year, they have to decide how much money to put in each account.

So, back to the homeowner.

When voters in our school district approve a 10-cent education fund rate increase, they are actually approving a 10-cent increase in the maximum rate of that one fund. Let’s say the old maximum rate was $1.

That means school officials can now tax homeowners $1.10 per $100 of assessed value to raise money for the one fund.

But keep in mind, the district has several other funds. And those funds also have maximum rates. Add all of those maximum rates together, and you have a total maximum rate limit. Each year, the district cannot exceed this total limit.

Say we add up all of the maximum rates, including the new $1.10 education fund rate, and come up with $3.

That means before voters approved the 10-cent increase, the sum of all those maximum rates — the total limit — was $2.90.

But that doesn’t mean the district was actually taxing the homeowner at the maximum rate of $2.90, or that the district will tax the homeowner $3 after the increase.

Rather, because district collections can only grow about 2 percent a year, and property values increase on average 8 percent a year, the tax rate continually goes down.

And the rate drops below the legal maximum rate.

What does that mean in our example?

Well, the district’s maximum overall tax rate was $2.90 before the referendum. School officials tell voters that one fund’s tax rate will increase by 10 cents — from $1 to $1.10, bringing the total for all funds to $3.

But the district has not actually taxed anyone at $2.90 in some time. The district’s ability to collect additional money keeps losing ground to the growth in property values.

Over time, the tax rate our district could use has eroded, and the district this year actually only taxed at $2.00, not $2.90.

5 years to implement

So what really happens when voters approve a 10-cent rate increase?

For starters, the district has five years to apply the increase. That’s the law.

In our example, the education fund maximum rate was increased from $1 to $1.10.

Now let’s say the education fund rate had eroded, or been restrained by the tax cap, because of the increase in property values. The rate had eroded to, say, 70 cents. That’s what the district actually taxed homeowners for that fund last year.

The law allows districts to raise the rate to the new voter-approved limit of $1.10.

The projections school officials use assume the district is taxing at $1.

But in our example, the district is actually taxing at only 70 cents, so while district officials say it’s a 10-cent increase, it could be a 40-cent bump.

By law, that agreed-to 10-cent increase can only be factored in at 10 cents a year.

The only exception is in DuPage, where the tax-rate increase is applied to the already eroded rate. Period. So the 10 cents would be added to the 70-cent rate.

So what does all this mean?

Outside of DuPage County, districts have the potential to raise taxes by 10 cents every year for five years.

That’s actually a 50-cent increase. But when you headed to the polls, you might have thought you were only voting for a 10-cent rate increase.

So in our example, even though the district has actually been limited to taxing at $2 overall, the total maximum tax rate under the law is $2.90. And school officials would probably say the tax rate would increase to $3.

In fact, outside of DuPage County, it could go up to about $3.40 — which includes those five annual, 10-cent increases.

So let’s all move to DuPage, right?

Wrong. The law gives districts in all the collar counties, including DuPage, another way to increase your taxes by more than you expect — or are told.

5 years to collect

Remember how the district has a number of different bank accounts, or funds?

Chances are the tax rates also have eroded in each of those funds — none is collecting all the money its individual rate limit would allow.

But in our example, voters approved a 10-cent increase in the education fund maximum rate, which raised the district’s overall maximum from $2.90 to $3.

The vote also lifts the cap on the $102 million the district had been limited to collecting.

And because of erosion, the education fund rate in practice is only 70 cents.

Say the maximum rate in the busing fund is 30 cents, and the actual rate has eroded to 15 cents.

When deciding where to put the 10-cent increase, the district could raise the transportation rate to 25 cents — still below the maximum — and leave the education rate alone.

So, in all six counties, the district would get another 10 cents to work with next year because it hasn’t increased the education rate at all.

And it can do the same thing for four more years.

In all, in that five-year period the district can raise its overall actual rate from $2 to much closer to the $3 legal limit — which is an overall increase in practice of closer to $1 than the 10 cents the voters approved.

School officials can drag — and have dragged — the process out for five years, not one year, as you may have been led to believe.

And that, basically, is how school officials can increase your tax bill thousands of dollars more than they said.