Property tax rate estimated to increase to $14 dollars next year

Two years ago, Rockford’s property tax rate was just over $12 per hundred dollars assessed valuation. Rockford area property owners will be shocked to know the estimated property tax rate for tax code 001 will be just shy of $14 dollars in 2014!

Tax code 001 includes Rockford School District, City of Rockford, Winnebago County, Park District, Rock Valley College, Rockford Library, Rockford Township, airport and numerous smaller municipalities.

In a previous blog post, it was explained that an unintended consequence of the Illinois Tax Cap law allows taxing bodies, without referendum, to levy the same amount of taxes levied the previous year, plus the rate of inflation or 5% whichever is less, even in a decreasing property value market.

Property values dropped another 5.71% this year, an Equalization Factor of 0.9429 for taxes to be paid in 2014. That means in order to remain at the current tax levy the taxing bodies need to raise the tax rate by 1/0.9429 = 6.06% above its current value.

Adding the December 2012 CPI value of 1.7% to the tax rate increase allows a local taxing district to raise their property tax rates by approximately 7.76% without voter approval, as long as statutory fund rate limits of the taxing body are not exceeded.

The school board has again voted to forego the CPI increase ($2.4M) allowed under tax caps for 2014, in addition to the 58 cent ($13.6M) decrease in this year’s levy, plus the reduction ($4.7M) with the abatement of 2012 CPI levy. However, to remain at the current property tax levy, the district will increase its property tax rate to $7.2151 from $6.6884, an increase of $0.5267.

Assuming the City of Rockford increases its tax rate to the maximum allowed under tax caps, including the CPI as it has in the past, the city’s 2014 property tax rate would increase from $2.8178 per hundred dollars to $2.8178*1.0776 = $3.0365 or about 22 cents higher than this year.

Winnebago County voted to increase the tax levy 1.5%, after freezing it for the past three years, resulting in a tax rate increase of $0.0833 from $0.9423 to $1.0256.

The residual tax rate in tax code 001 is $2.4531 for the remaining taxing bodies, such as RVC, the Park district and Rockford Township, etc., would increase by approximately $2.4531*(1.0776) to $2.6435.

Therefore, the estimated 2014 tax rate for tax code 001 would be $7.2151+$3.0365+$1.0256+$2.6435, which would equal $13.9207, almost $14.00 per hundred dollars of assessed valuation.

According to Forbes Magazine, Rockford area property taxes were the fifth highest in the country in 2009, as a percentage of the Fair Market Value (FMV) of the property, a normalized method to precisely compare properties at different tax rates and values in taxing districts throughout the country.

Forbes obtained the data from the Tax Foundation in Washington D.C., which  listed the median tax bill in Winnebago County at $3234 on a median home value of $136,000 for a percentage property tax ratio of 2.4% of FMV, which ranked 11th highest of all the counties in the entire country.

That was four years ago, and the value of homes have since dropped over 21%, while property taxes have increased in most cases!

However, increasing tax rates are not the primary reason that the ratio of taxes as a percentage of FMV is one of the highest in the nation. It’s because property values are dropping at a much faster clip than the tax levies are increasing. So, even if the aggregate tax levy remains the same, the property tax as a percentage of FMV would still increase in a declining home market.

For example, the property tax on a $100,000 home this year with the homeowner’s exemption was $3526.40. Next year, the $100,000 home decreases in value to $94,290 and at the 2014 estimated tax rate of $13.92, the property taxes would be about $11.10 more than this year.

So, property taxes as a percentage of FMV for this year was 3526.4/100,000 = 3.5264% and for next year will be 3537.5/94,290 = 3.7517% – a 6.39% increase in taxes as a percentage of FMV.

There has been an increase of 56.25% in the ratio of taxes to FMV since 2009, when the value was 2.4 and Rockford was 5th highest property tax ratio in the nation! Area home values must reverse course to eliminate this economically debilitating phenomenon.