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What Does a Tax Levy Really Mean?
What Does a Tax Levy Really Mean?
Tom Mulligan
Wednesday, December 05, 2018

Tax Levy Time

It is the time of the year when taxing bodies approve and then file their annual tax levy. The school district, as you probably know, is the largest of the taxing bodies in Arcola. The Arcola Board of Education will be considering the tax levy for approval at its December meeting. This will be the 2018 Tax Levy for taxes to be extended in July and September of 2019 (or during the 2019-2020 school year).

The amount of tax revenue generated for the school district is calculated by taking the district tax rate and multiplying it by the property wealth (value of property) in the district. This property wealth is called equalized assessed value (EAV).  The 2017 school district tax rate was 4.4993% and the district EAV was $90,861,679.  As a result, the district received $4,088,139 (4.4993% X $90,861,679) in tax extension for the 2018-2019 school year.  This final amount was calculated after some taxes were abated (paid for using revenue generated by the 1% county-wide sales tax) by the district.

Why can the Tax Levy Be Misleading?

School districts are required to set their tax levy before knowing what the equalized assessed value (EAV) will be for the levy year. Specifically, the levy is due by December 31 but the district won’t know the actual EAV until April. As a result, the district must project a high EAV increase and set the levy high to be sure the district has full access to all tax dollars available to the district.

The district can realize an increase in EAV from year to year in two ways.  The first way is through increases in EAV on existing property that has been reassessed. The second way is through new property coming on the tax rolls. Again, since the district has no idea what the increases may be or what new property will be coming on the tax roll, the tax levy must be estimated high. But in reality, the estimated tax levy actually does NOT necessarily dictate the amount of taxes eventually extended to the district.  Let’s take the 2017 tax levy as an example. In the paper last year, the tax levy notice indicated this:

“The total property taxes extended or abated for 2016 were $4,053,965.00. The estimated total property taxes to be levied for 2017 are $4,378,019.00.  This represents an 8.0% increase over the previous year.” 

 

But, the actual total property taxes extended ended up being $4,194,140, which is much less. The district did NOT see an 8% increase, it only realized a 3.48% increase.

 

How Does a District Tax Rate Impact Taxes?

Earlier I had said that the amount of taxes generated for the school district is calculated by taking the (1) district tax rate and multiplying it by the (2) property wealth in the district (EAV). There are two key factors (tax rate and EAV). The district has no control over determining property value. That is determined by the county assessor. On the other hand, the district does have control over setting the tax rate. When the district sold working cash bonds a few years ago to create a debt extension base, the district promised property owners that the tax rate would NOT increase. The 2015 overall tax rate (prior to working cash bonds) was 4.5815%, the 2016 tax rate was 4.5401% and the 2017 tax rate was 4.4993%. If a homeowner in Arcola had a maintained the same assessed value from 2015 through 2017, his/her tax bill to the district would actually have gone down over that time.  On the other hand, if the individual’s assessed value had gone up he/she might have seen an increase in their property tax bill even with the declining tax rate.

Does a High Tax Levy Result in Higher Taxes for Individuals?

When reading the information above from the 2017 tax levy, someone might first assume that his/her property tax bill to the school was going to increase by 8% but that was not the case.  One might then think it was going to go up by 3.48% but that is not accurate either. 

A high tax levy does NOT result in a higher tax bill for the homeowner. There are actually only three ways a homeowner will see an increase in property taxes and none of them are directly impacted by the district tax levy. Those three ways include: an increase in the tax rate (which is only finalized after the district EAV is final), an increase in assessed value from the county assessor, or the application of a county-wide multiplier above 1.0 by the Illinois Department of Revenue.

Working Cash Bonds and Tax Levy

Several years ago the school board approved selling $500,000 in working cash bonds while promising not to impact the tax rate or individual property taxes.  One reason the board sold the bonds was to generate revenue to be used for the district technology upgrade, which occurred this school year. The district spent over $450,000 for all new student devices/cases/keyboards and around $35,000 on technology equipment for the graphic arts program. To make sure there was no increase in taxes, the district paid for part of the annual bond and interest payment for the building bonds (from when the new high school addition was built) with sales tax revenue. This lowered the portion of the tax rate for bonds offsetting the increase caused by the working cash bonds. The last working cash bond payment is due in December of 2020, which means the 2019 tax levy will be the last tax levy impacted by the current working cash bonds.

Building Bonds and Tax Levy

In 2014, the Arcola School Board approved refunding (refinancing) the building bonds that were remaining on the bond payment schedule.  In addition to lowering the interest rate from 4.61% down to 1.86%, the district increased the principal payment the first several years and committed to using sales tax proceeds to make up for the increase.  By doing this, the district saved taxpayers a total of $434,529 in interest and principal.  In addition, it cut three years off the length of the repayment schedule.  The original payment was scheduled for December 2023 and it is now December 2020!

Summary

I once heard someone say understanding property taxes is like learning a new language! As a result, I always try and provide clear information supported with examples.  If you struggled with some of the ideas/concepts in this article, you are not alone.  Just know that the Arcola School Board takes the responsibility of being the steward of public funds very seriously.  As a result, they are always looking for ways to maximize the use of those funds while at the same time trying to minimize the impact on the taxpayer. The property tax extension accounted for 40% of all revenue generated by the school district in the 2017-2018 school year. Without this valuable source of revenue, the district could not function effectively. The board and staff appreciate the commitment that local taxpayers have to supporting the school district and the children we serve. We will continue to use those funds conservatively while providing the best possible education experience for our students.