An analysis

There has been a great deal of discussion over the years about how property tax caps limit a school district’s ability to increase property tax revenues to the lesser of the Consumer Price Index (CPI) or 5%. But the discussions rarely go further than that, largely bypassing the fact that tax caps do not cover new construction in a school district’s area.

Between 2017 and 2020, School District 65 has been able to increase its property tax levy by significant amounts due to the value of new construction in the District. In its 2020 tax levy, the District was able to increase its levy by more than $4.9 million due to new construction added to the district’s property tax rolls in the years 2017, 2018, 2019 and 2020.  

To put this in context, the district increased its property tax levy for operations by about $13.9 million between 2016 and 2020. Thirty-five percent of that increase was due to new construction.

These numbers do not include the increase for new construction that was included in the 2021 property tax levy that was approved by the District 65 School Board on November 15. That levy includes an additional $4.2 million for new construction in 2021. At this time, that number is still an estimate and Raphael Obafemi, the District’s Chief Financial Officer, said it will be reduced by the Cook County Clerk next summer.

The district, however, has been able to increase its property tax levies since the referendum by a significant amount due to new construction. And during that same period, District 65’s student enrollment has declined.

PTELL/Tax Caps

The Property Tax Extension Law (PTELL) limits the amount that school districts in Illinois, including School District 65, may levy for property taxes.   

PTELL imposes limits on what is called a school district’s “Aggregate Extension,” which is that part of the property tax levy that funds a school district’s operating expenses, including salaries, consulting services, insurance, supplies, building maintenance and transportation, everything except for payments on bonds.

When determining how much a school district may increase property taxes from one year to the next, a school district starts with its Aggregate Extension in the prior year. PTELL allows a school district to increase its Aggregate Extension from one year to the next by the lesser of 5% or the increase in the CPI. The PTELL also allows a school district to levy an additional amount for new construction, which includes new buildings or additions to existing buildings within the district during the levy year. It also allows a school district to include amounts for all new construction in a TIF District, but only when the TIF District expires. A school district may also include an additional amount approved by voters in a referendum.

When District 65 prepares its property tax levy for a new year it generally calculates the increase permitted by multiplying its Aggregate Extension from the prior year by the lesser of 5% or the increase in the CPI. It also estimates the amount of new construction in the district in the new year. That number is estimated because the new construction may not yet have an assessed value and the district may not be aware of all the new construction in the district.

After District 65 submits its property tax levy to Cook County, the Cook County Clerk determines (usually in or around August) how much the district may include for new construction, and it will decrease the district’s estimate, if appropriate. The Clerk will not increase the estimate, Mr. Obafemi said.

Once the Clerk signs off on an Aggregate Extension for a given year, it becomes the base for calculating the next year’s Aggregate Extension.

Tax Increases Due to New Construction in 2017 to 2020

In presenting a proposed 2021 property tax levy to the School Board on November 15, District 65 administrators included a table that provided historical data of the District’s property tax levies from 2014 to 2021. [1] The data enables one to calculate how much of the property tax increase in any given year was due to an increase in the CPI and how much was due to new construction in the District. [2]

An analysis of the data shows that District 65 has been able to increase its Aggregate Extension (i.e., its property tax levy to fund operations) due to new construction in 2017, 2018, 2019, and 2020 by the amounts indicated:

2017 – $277,849

2018 – $2,907,587

2019 – $651,759

2020 – $1,064,260   

An increase in the property tax levy due to new construction in one year carries through to each subsequent year. For example, the District increased its property tax levy by $277,849 in 2017 due to new construction. In addition, that amount was also added to the District’s Aggregate Extension. And the $277,849 thus became part of the base amount used to calculate property taxes in the next year, and the next year, etc. 

And this can snowball. For example, in determining its 2021 property tax levy, the district started with the Aggregate Extension approved for the 2020 levy. The Aggregate Extension approved for 2020 included all the additions for new construction in 2017, 2018, 2019 and 2020 – the cumulative total of which was $4,901,455. The starting base amount was thus $4,901,455 higher due to new construction in the previous four years.  

In determining its 2021 levy, the district multiplied the 2020 Aggregated Extension by the CPI percent and added an estimated amount for new construction in 2021.

The 2021 Property Tax Levy

On November 15, the District 65 School Board approved its 2021 property tax levy in the total amount of $128,695,266. That levy includes an “Aggregate Extension” of about $122.7 million, which is $5.8 million, or 4.98 %, higher than the Aggregate Extension for 2020.

Of the $5.8 million increase to the Aggregate Extension for 2021, $1.6 million, or 1.4% of the increase, was due to the CPI percent, and the balance of about $4.2 million, or 3.58% of the increase, was due to an estimate of new construction in 2021.

The 2021 levy also includes an additional amount of about $6 million for payments on bonds.

At this point, the amount included for new construction in the 2021 is still an estimate. Mr. Obafemi said the district estimated new construction in 2021 and then increased that amount to ensure that it captured all the new construction that becomes subject to the district’s property tax levy in 2021.

“The district always levies more than expected to account for any unforeseen increases in EAV [Equalized Assessed Value] and New Construction,” he said. He added that the Cook County Clerk will reduce the Aggregate Extension in the summer of 2022 after the equalized value of all new construction in 2021 is determined.  

Mr.  Obafemi told the RoundTable that the district included the value of the new nine-story building at 1815 Ridge Avenue in making the estimate. He said the district estimated that building alone would increase the Aggregate Extension by about $900,000 in 2021.

He said the building is complete, but it has not yet been assessed by the Cook County Clerk and, in addition, the City included the property in the Three/Fifths TIF which was recently approved by City Council. So there is a good possibility that the Cook County Clerk will not include the building as new construction in the district’s Aggregate Extension for 2021 and not include it in the district’s Aggregate Extension until the Three/Fifths TIF expires in 23 years. Because the issue has not been finally determined, however, the district included the building in its estimate for the 2021 Aggregate Extension – as a precautionary measure.

Even if the Cook County Clerk reduces the district’s $4.2 million estimate for new construction in 2021, the dollar amount may end up being a significant increase in the Aggregate Extension.

The CPI

The CPI is currently on track to exceed 5% for calendar year 2021. If the CPI exceeds 5% for the year, District 65 would be able to increase its Aggregate Extension by 5% in calculating its property tax levy for 2021. This would enable it to increase its property tax levy by a lot more than it has been projecting – perhaps by as much as $4 million in its 2022 levy (not including an amount for new construction). And even if a 5% CPI was only a temporary blip, the increase in the 2021 CPI would carry through to each subsequent year.

Time will tell.

……………..

Footnotes/Calculations

[1] The table below is reprinted from a memo presented to the School Board on November 15. For each year in the period 2014 through 2021, the table shows the levy year in the first column, the CPI percent in the second column, the Aggregate Extension (i.e., the property tax levy for operations) in the third column and the Aggregate Increase in the Aggregate Extension in the fourth column. Several years stand out:

  • For 2016, the Aggregate Increase was 18.35%. The bulk of this increase was approved by voters in the April 2017 referendum. In addition, Mr. Obafemi told the RoundTable that the City’s Howard/Hartrey TIF District expired and the new construction in that TIF District became subject to the district’s tax levy in 2016.
  • For 2018, the Aggregate Increase is 4.86%. The Washington National TIF expired and the value of new construction in that TIF District became subject to the district’s tax levy in 2018, Mr. Obafemi said.
  • For 2021, the district estimated that the increase in the Aggregate Extension will be 4.98%. Mr. Obafemi said the increase is based on the CPI of 1.4%, plus the district’s estimate of new construction, which, he said, will be reduced.

[2] The chart below shows the CPI percent and the Aggregate Increase percent for the levy years 2015 to 2020, as reported in the District’s table reprinted above.  The Aggregate Extension percent increase is higher than the CPI increase in each year because it includes an amount due to new construction. The Aggregate Increase for the 2021 levy year is shown in yellow because it is still an estimate, and the District is not expected to receive that amount.

The table below shows the amount that District 65 has been able to increase its property taxes in 2017, 2018, 2019, and 2020 due to new construction. Column (1) shows percentage increase in the Aggregate Extension that is due to new construction (calculated by subtracting the CPI percent from the Aggregate Extension percent); Column (2) shows the dollar amount of each year’s Aggregate Extension that is attributable to new construction (calculated by multiplying the Aggregate Extension by the percentage in column (1); Column (3) shows the cumulative total of the amounts shown in column (2) from year to year.

The table shows in each of the years 2017, 2018, 2019 and 2020, District 65 was able to increase its Aggregate Extension (i.e., its property tax levy for operations) by a significant amount due to new construction.

In 2020, the boost was $4,901,455 due to the new construction in those four years. And, as noted above, this carries through to subsequent years.  

Mr. Obafemi cautioned that one cannot assume that the track record for adding new construction between 2017 and 2020 will apply to the future because the Washington National TIF expired and caused a significant jump in property tax revenues in 2018.  

 

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  1. This is interesting data, can the district or the the Roundtable provide information as to how much of the increase new construction was in TIF districts? Also, provide a breakdown on how much of the D65 tax levy overall is directed to TIF districts?