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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.

 

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9 Comments

  1. When (and it will happen let’s hope soon) home values stabilize and begin to increase again will the taxing bodies lower the assessed amount? If they do not we will be in for a HUGE property tax increase down the road.

    • Ted Biondo

      Good question, Dan. When home values start to increase – the assessed values are averaged over a three year period – so, it will take like 20% increases in home values for two years just to get back to the values of three years ago. The limit on taxes will still be governed by the tax cap law which is the levy the taxing body received the previous year plus CPI or 5% whichever is less.

      As the values of the homes increase, the tax rate will decrease, by law, because the tax levy is basically the tax rate times the home’s assessed value and the tax levy is still limited to the previous year’s levy plus no more than the CPI or 5% which ever is less.

      The taxes will increase due to this law, but limited by the above formula. Your taxes aren’t going up 20% because the value of your home does. I hope this helps explain it. Tax caps work both in a decreasing and increasing market to limit the tax levy variations.

  2. Milton Waddams

    The other elephants in the room are the reduction in values of commercial and industrial properties and the city’s TIFs.
    1. Commercial and industrial property owners have filed complaints for huge reductions and the assessors haven’t had sufficient evidence to fight them. As a result, more and more of the property tax base has shifted to homeowners. The taxing bodies used to maintain a fund to fight these large complaints, but no longer do. Why?
    2. The TIFs are a shadow tax increase on everyone else not within the TIF. The school district doesn’t reduce its levy, but the tax base is effectively reduced because of the TIF. As such, everybody else makes up the difference. The City of Rockford has 32 (I believe that is the number) TIFs. Most all of these are in tax code 001. They include a lot of commercial and industrial property as well, which doubles up on the first elephant.

    • Ted Biondo

      Both are great points, Milton. I will check on the appeal fund and get back to you on that. TIFs do exactly as you say, exactly. There are too many TIFs and they are not working, especially in a decreasing market – the TIFs not only reduce the tax base for the other districts, which increases taxes for those outside of TIFs, but also takes more money out of the city’s General Fund, some $3M, as an additional tax.

      Got any more great ideas, I’m doing a future post on what we need to do to reverse this downward spiral on home values.

  3. TIF districts, like so many government programs, are best used sparingly, if at all. The potential for abuse is too great, with even farm fields able to be classified as “blighted”. Finally, the average taxpayer gets stuck with the bill for all this bureaucratic largess, but gets little, if any, benefit for themselves.

  4. Jake Schiller

    Don’t the leaders and unions understand that they are driving this city into the ground? Everyone I know wants out. Ted, what will save Rockford?

  5. Site Administrator

    I’m from Boston, and our Gov. Patrick, formerly of Chicago, and Obama’s bookend, ran on a platform of property tax reduction.

    And just like everything else, that was a big lie.

    Chicago thugs or Boston thugs, they are all the same.

  6. Ogle County

    Ted,

    Another problem I see is the effect on bond interest payments with the decreasing EAV. Many governmental bodies, especially school districts sold voters on issuing bonds with a low increase in the tax rate. Assumptions were made that the EAV would increase every year by the time the larger principal and interest payments were due. Now with EAVs going down and no new construction bond payments are coming due and the tax rate is being driven higher. There is no statutory limit on bonds and a few other funds. I hope the same thing will not happen to the Rockford School district with their recent large bond sale.

    • Ted Biondo

      Great point, Ogle County. That problem is more subtle than some but is right on point. I need to figure out the magnitude of the problem. You are absolutely right that bonds do not have limits, along with pensions – IMRF, Social Security, Transportation, and tort funded liabilities, which are being used by many taxing districts to supplement salaries and benefits of some of their employees who have dubious effects on safety and liability of students and assets?!

      So, as the EAV drops, due to lower priced sales and even assessment complaints to the Board of Review, the resulting taxes and tax rates under PTELL tax caps, will increase for all property owners, unless those who have successful complaints obtain a value lower than the percentage increase in CPI.

      Great point – forced me to think of these other problems!

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