RE: TAX LEVY INFORMATION

Transcription

1 Board Member: October 14, 2010 RE: TAX LEVY INFORMATION Cook County Multiplier/Level of Assessments Over the past year, a fundamental change in the property tax assessment process for Cook County was enacted by the County Board of Commissioners. The new law reduced and clarified assessment levels for all property owners and created two assessment levels where there had previously been six. The assessment level is a percentage of a property s market value used to calculate its assessed valuation. As a result of this legal ordinance change, all property for 2009 was assessed at either 10% or 25% of its fair market value. This represents a significant reduction from the old level of assessment by property class as follows: Property Property Type New Assessment % Old Assessment % Class 1 Vacant Land 10% 22% 2 Residential 10% 16% 3 Apartments 16%-10% (Phase-in) 20% 4 Non-Profit 25% 30% 5A Commercial 25% 38% 5B Industrial 25% 36% Incentives Various 10% 16% Because this ordinance change affected all property, reassessment notices were mailed to every property owner in Cook County this year, even though only the City of Chicago was scheduled for reassessment under the triennial reassessment system. According to the Cook County Assessor s Office, the reassessment notices mailed to suburban property owners reflected downward adjustments due to the recent decline in the real estate market. The reductions for residential properties ranged from 4% to 15%. In late September, the Illinois Department of Revenue announced the final 2009 equalization factor of for Cook County. The Department of Revenue is required by law to determine the equalization factor, commonly called the multiplier, to achieve uniform property assessment throughout the state. The 2009 final equalization factor of represents a 13.1% increase from the 2008 multiplier of Tax Cook Co. % Change Year Multiplier % (0.9%) % % %

2 The Department of Revenue determines the multiplier for each county by comparing the actual selling price of individual properties, over a three-year period, with the assessed value placed on those properties by the county assessor and adjusted by the Board of Review. If the median level of assessment for all property in the county varies from the 33 1/3 percent level required by law, an equalization factor is assigned to bring assessments to the legally mandated level. According to the Department of Revenue, the three-year average weighted level of assessments for Cook County property was 9.89 percent. This includes vacant lots, residential, apartments, commercial and industrial properties. The multiplier is then determined to bring the average level of assessments to the required 33 1/3 percent level by dividing Cook County s three-year average of 9.89 into Based on data from the Illinois Department of Revenue, the average level of assessments in Cook County, after factoring adjustments by the Board of Review, are considerably lower than the established ordinance level of assessments. Class Year Avg. New 10/25 Ordinance 1 Vacant lots 4.66% 6.11% 7.40% 6.06% 10% 2 Residential 8.83% 8.66% 9.21% 8.90% 10% 3 Apartments 7.89% 8.76% 8.71% 8.45% 10% 5a Commercial 12.85% 13.29% 15.25% 13.80% 25% 5b Industrial 15.02% 14.41% 16.10% 15.18% 25% Avg. (Weighted) 9.64% 9.63% 10.40% 9.89% Because assessments have been lower on the average across the county, based on actual selling prices of property, the multiplier has increased in order to bring the level of assessment up to the 33 1/3 percent level required by law. By comparison, the multiplier in Dupage County is This indicates that on the average, all property in Dupage County is assessed at 33 1/3 percent of fair market value. As a result of the assessment ordinance change and subsequent multiplier increase, we believe that the distribution of the tax burden will not be proportionate. Commercial and industrial property owners will likely experience the greater benefit of these lower assessments. The unintended consequence of businesses receiving lower property assessments is a tax burden shift to residential property owners. Even though District 211 s 2009 levy could only be increased by the CPI-U tax cap limitation of 0.1%, plus new property, individual tax bills of residential property owners will likely increase due to the disproportionate assessment decreases for commercial and industrial property owners. This will result in a shift in the tax burden. When the District s 2009 equalized assessed valuation (E.A.V.) is determined in the coming weeks, the final tax rate will be established based on our 2009 levy divided among all equalized property assessments. The total levy amount received for 2009 will only increase by 0.1%, plus any new property that came onto the tax records for The assessment process is the determining factor on how the bill will be divided among taxpayers.

3 First Installment Due Date Another important change that will affect property taxes in Cook County is a recent amendment to the Property Tax Code that moves the due date for the first installment of next year's Cook County property tax bills to April 1, 2011 from March 1, We do not anticipate any adverse affect on our cash flow projections from this due date change Levy Calendar The Truth in Taxation Act requires the Board of Education to determine a proposed levy amount at least twenty days prior to final adoption. If the proposed levy amount (excluding the Debt Service levy) exceeds 105% of the amount extended the previous year, then a public hearing must be held prior to levy adoption. A prescribed form of notice of public hearing on the proposed levy must be published in a newspaper with general circulation within the school district. The notices may not be published more than fourteen days nor less than seven days prior to the public hearing. The final levy amount must be adopted and filed with the County Clerk before the last Tuesday in December, the 28th. Based on these requirements, the following levy calendar calls for determination of a proposed 2010 levy at the November 4 Board of Education meeting. November 4, 2010 November December 2, 2010 December 9, 2010 December 28, 2010 Scheduled Board of Education meeting. Review 2010 levy material. Determine amount of proposed 2010 levy. This determination must not be made less than 20 days prior to the levy adoption. Prescribed form of notice of public hearing must be published in a newspaper with general circulation within the school district no more than fourteen nor less than seven days prior to the public hearing. Scheduled Board of Education meeting. Public hearing on proposed 2010 levy at 7:30 p.m. and adoption of 2010 levy. Last day to file 2010 levy with the Cook County Clerk Levy Considerations The Property Tax Extension Limitation Act (Tax Cap) limits the increase in levy extension to 5% or the percentage increase in the Consumer Price Index for the previous calendar year, whichever is lower. The Consumer Price Index for 2009 was 2.7%. The following restrictions will be in place for the 2010 levy: a 2.7% limit on the 2010 tax extension over the 2009 amount (tax cap); the prior year equalized assessed valuation (E.A.V.) limitation; and statutory rate limits of certain individual levies. Since the implementation of the Tax Cap in 1994, the District has levied the maximum amount allowable in order to generate sufficient revenues to meet increasing operating costs.

4 The tax cap law will allow the E.A.V. of new construction in the current year (2010) to be added to the District s prior year (2009) E.A.V. New construction includes improvements or additions that increased the assessed value of the real property during the levy year. In addition to new construction growth, Cook County includes a 3% loss and cost factor to the District s levy. This ensures the District will collect sufficient property taxes to fund operations and make bond payments. The loss and cost amount is added to levies to offset any unpaid taxes due to delinquencies and foreclosures. By including a loss and cost factor, the District ensures any new growth not accounted for in the District s estimate will be captured as part of the tax levy. The key component in determining the maximum allowable levy amount is the calculation of the limiting rate. The aggregate rate extended for operating funds subject to the Tax Cap Law cannot exceed the limiting rate. The general formula for the limiting rate for the 2010 levy is as follows: 2009 aggregate extension (excluding Debt Service) x (CPI) (2010 estimated EAV est. new property) / ,202,017 x ,310,471 = = $10,395,544,375-50,000,000 / ,455,444 The limiting rate formula allows for growth in aggregate extensions by the amount of the Tax Cap limit, plus amounts for new property. When calculating the limiting rate, the District must estimate the 2010 EAV and 2010 new property, as these figures will not be known until the month of October or November, 2011 following the December 2010 tax levy. The following illustrates the projected maximum levy extension for 2010, excluding the Debt Service levy given these assumptions: December '10 Levy Ext. Projected 2010 Prior EAV+ New Prop. Fund Levy Ext. % Inc.(Dec.) Tax Rate Rate Limits Per Statute Educational 150,110, % Working Cash 1,817, % Oper./Maint. 28,380, % Transportation 6,680, % N/A Municipal Retire. 4,140, % N/A Social Security 4,140, % N/A Sub-Total 195,271, % Debt Service 5,560, % TOTAL 200,831, % Debt Service Levy Considerations The Debt Service Levy is used to pay outstanding bond principal and interest payments. Currently, District 211 has approximately $41.8 million of outstanding debt from its 2006 Working Cash Bond issue. Since 2007, the Board of Education has reduced the Debt Service levy by $13.0 million by using existing working cash funds to pay an apportionment of outstanding bonds. This has resulted in an overall lower tax rate for taxpayers. Our financial

5 plans provide for continuation of this positive levy abatement strategy through the 2013 levy as shown below. DEBT SERVICE SCHEDULE With Transfers From Working Cash Principal/ Interest Due Levy Year Life Safety Bonds 2002 Working Cash Bonds 2006 Levy W/C Abatement (Levy Reduction) Net Levy 6/1/07-12/1/ ,766,075 4,532,250 10,298,325 10,298,325 6/1/08-12/1/ ,931,200 6,365,050 10,296,250 (3,000,000) 7,296,250 6/1/09-12/1/ ,296,000 10,296,000 (5,000,000) 5,296,000 6/1/10-12/1/ ,295,750 10,295,750 (5,000,000) 5,295,750 6/1/11-12/1/ ,995,000 8,995,000 (3,700,000) 5,295,000 6/1/12-12/1/ ,997,750 8,997,750 (3,700,000) 5,297,750 6/1/13-12/1/ ,996,000 8,996,000 (3,700,000) 5,296,000 6/1/14-12/1/ , ,000 (609,000) - Last month, the Board of Education reviewed our recently approved life safety amendments totaling $26 million. Based on these approved life safety compliance amendments, the District can develop detailed plans and specifications to implement and fund the recommendations. The first phase of projects will commence during the summer of The options available to the District to fund the mandated life safety compliance work are to use existing Operations and Maintenance Fund operating funds; access the Fire Prevention and Life Safety Fund levy, which has a maximum rate of.05; or issue life safety bonds within the limits set by P.A (Limited Tax Bond Authority). Under the provisions of Limited Tax bonds, the District can issue life safety bonds provided the annual debt service tax extension does not exceed its 1994 debt service extension amount of $13 million. The.05 Fire Prevention and Life Safety Fund levy, which must be part of the overall tax extension limit (Tax Cap), could generate approximately $5.0 million annually. Given the relatively low CPI and Tax Cap limit, the District has maximized the aggregate levy extension for its operating funds since the inception of the Tax Cap law. As the District retires its outstanding bonded debt in the next few years, future bonding considerations can be considered without increasing the Debt Service tax rate. Since 2007, the District has abated the Debt Service levy by $13 million with Working Cash funds. The Debt Service levy has been reduced from $10.3 million in 2006 to $5.3 million for For 2010, the total debt service decreases from $10:3 to $8.9 million and we will be recommending a $3.7 million abatement in order to maintain the net debt service levy at $5.3 million. Given the outstanding obligations, the abatement levy strategy that maintains the total debt service at the $5.3 million level ($5.7 million with loss/cost) is recommended to continue through the 2013 levy. The overall abatement strategy has been very positive for our District taxpayers, as we have lowered the overall tax rate without adversely affecting our operating fund balances. Based on our approved Life Safety amendments totaling $26 million, the following funding considerations are being presented for review and discussion:

6 Commence with the initial phase of Life Safety projects (approximately $3.0 million) during the summer of 2011 and 2012 utilizing existing Operations and Maintenance Fund reserves. This will not adversely affect the level of reserve in the Operations and Maintenance Fund in the short term. Accessing the.05 Fire Prevention and Life Safety Fund levy is not recommended given the tightening of revenue projections and that the levy would be part of the overall tax extension limit (Tax Cap). Consider the issuance of Life Safety bonds in The District currently pays debt service of approximately $9 million per year through the 2013 levy. The District can issue bonds in 2012 without increasing the tax rate by layering the debt service structure into the expiring debt obligation from the 2006 bonds. The debt service schedule would be structured based on a $5.7 million debt service target in As part of the 2012 Life Safety bond issuance, the Board may elect to adopt a reimbursement resolution that provides for reimbursement of project costs paid from the Operations and Maintenance Fund. The reimbursement is paid from the bond proceeds. This could represent a $3.0 million reimbursement to the Operations and Maintenance Fund from the proposed 2012 bond issue. If applicable, state and federal regulations will dictate time and completion parameters for project reimbursement. 12,000,000 10,000,000 Proposed $26 Million Life Safety Bonds Existing 2006 Working Cash Bonds Debt Service 8,000,000 6,000,000 W/C Abatement Maintains $5.7 million Debt Service 4,000,000 2,000, Levy Year At the next Board of Education meeting on November 4, 2010, we will provide a review of projected revenues, expenditures, and fund balances and determine the proposed levy amount for Nancy N. Robb Superintendent