District 99 Controller Explains Tax Cap Impact on Levy Request

On their way to approving the 2010 tax levy for Community High School District 99, school board members got a primer on how the tax cap impacts both district revenues and residents' tax bills.

It's a little-understood fundamental, but one that plays a key role every year this time as school districts and other governmental bodies set their levies.

The District 99 board Monday approved a levy request of $66.7 million, representing a 4.91 percent increase over last year's extension, the technical term for the amount of taxes levied.

In actuality, the amount is larger than the district will take in, but setting the preliminary request high allows the district flexibility to adjust the amount going into its various funds once figures for equalized assessed valuation (EAV) and new construction are finalized next spring.

"It doesn't change the amount we will get, but it gives us more flexibility to use it wisely," said Controller Mark Staehlin, who expects an actual increase of 3.1 percent.

Staehlin is anticipating a 0.4 percent increase in taxes from new construction; a higher number would bring more revenue into district coffers. His calculations also call for a 5.63 percent decline in the EAV, although the levy request allows for a decrease of as much as 6.5 percent.

Whichever number proves accurate, the decline marks the first significant drop in EAV in the history of the tax cap, Staehlin said. And it's likely next year will see another decrease.

Under the tax cap, the district's tax rate is calculated by dividing the levy amount by EAV. By law, the levy amount, or extension, is limited to the previous year's extension plus inflation, as measured by the Consumer Price Index-Urban. For the 2010 tax levy, the CPI-U rate is 2.7 percent. Last year, the rate was a tiny 0.1 percent.

The more EAV declines, the higher the district's tax rate. Conversely, if property values increase substantially—from 2005 to 2007 EAV increased by more than 8 percent per year—the rate drops. It's a system that protects both school districts and taxpayers, Staehlin said.

"In a typical year, the denominator (EAV) increases by five percent, then the rate drops—like what happened in the past 15 years," Staehlin said. "When the rate goes up, that stuns people. But it's more a factor of what has happened to the EAV."

Despite the rate, residents will see their school taxes increase by 2.7 percent—the CPI-U rate. "It's the inflaction factor that people understand in their own life, but not in public life," Staehlin said.

To avoid the increase, the district would have to cut its budget by more than the amount of inflation. For example, "if we have 20 buses on the North campus and we need 2.7 percent more to run those 20 buses, if we cut the budget by 2.7 percent and cut one bus, the budgeted amount is still the same as last year," Staehlin said.

With each year's extension serving as the basis for the next year's tax revenue and state aid, "any decrease in the extension is a permanent decrease," Staehlin said.

The state bases its aid calculations for District 99 on the extension and EAV base, "if we don't levy taxes to the same rate as the prior year, we would get less state aid," Staehlin said. The district currently gets about $360 per student per year in state aid.

And given the state's difficulties with paying aid on a timely basis, if at all, that is yet another budget figure that is subject to change.

Referring to his discussions with township assessors in an attempt to get a handle on EAV months before the figures will be finalized, Staehlin said, "It's very difficult to take a shot in the dark."

This story is part of a nationwide Patch series probing the economy's effect on local schools.