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Is it time to get rid of Tax Caps?

Property tax bills have arrived and it is obvious that the Property Tax Extension Limitation Law – PTELL – commonly known as the Property Tax Cap Law, is not working as intended.

PTELL was supposed to protect property owners in non-home rule districts from huge tax increases when home values were increasing very rapidly by limiting taxing districts to the taxes levied the previous year plus inflation up to 5% and an additional amount for new construction.

The law was not intended to hurt taxpayers by increasing property taxes, even as home values plummeted, by allowing the districts to raise their tax rates without referendum.

Examination of this year’s property tax bills shows the tax rate increased almost one dollar per hundred of assessed valuation to $14.982 compared to last year’s rate of $14.0023, an increase of almost 7% in tax code 001.

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

Therefore, unless the assessed value of your home minus exemptions, decreased by at least 7% last year, you will pay more in property taxes this year despite a decrease of 5.87% in the average home value in the Rockford area.

Slightly more than 56% of area properties will pay higher taxes, with approximately 70% of the total properties changing plus or minus $100 dollars from last year’s tax bill.

PTELL caps neither individual property tax bills nor individual property tax assessments.

The amended law essentially establishes an aggregate tax levy, which allows taxes from one fund to be shifted and spent by other funds, creating a loophole most taxing districts are taking full advantage of – bypassing state statutory caps in limited funds, by collecting the total aggregate tax rate allowed by law through a fund that is not capped.

School districts are using their Transportation Funds and other taxing districts have a General Fund that currently have no statutory limits. With the aggregate levy, it doesn’t matter whether the taxes collected in the Transportation Fund are used for school buses, drivers and fuel, or for district salaries and benefits, operation and maintenance or even placed in reserve funds!

The Durand School District Transportation Fund increased this year to $0.7298 from $0.5254 last year and from $0.2670 the previous year, an increase of 273% in 3 years to maintain their tax levy with inflation as allowed by tax caps.

The Rockford School District this year increased its Transportation Fund to $0.7732 from $0.4551 last year, an increase of 70% to raise the RSD205 property tax rate from $7.2301 to $7.7810, an increase of 7.6% to maintain their previous aggregate tax levy.

This PTELL loophole has allowed taxing districts to raise our property taxes to almost 4% of the property’s Fair Market Value – one of the highest in the country!

It begs the question – is it time to get rid of Tax Caps?

Public Act 89-718, effective March 7, 1997 allows county boards of counties that are subject to the PTELL by referendum to give voters the opportunity to rescind PTELL using the same referendum process.

If the voters reject PTELL at this referendum, taxing districts located entirely within the county will no longer be subject to Tax Caps.

Also, PTELL Public Act 94-976, effective June 30, 2006, eliminated voter approved maximum rates allowing for a state statutory maximum rate for all affected funds.

Prior to 2006, the maximum state statutory rate for school district’s Transportation Funds was $0.20, not unlimited as it is today, and that rate was used for decades by RSD205. Other maximum rates were also much lower than they are today.

Since the Illinois Department of Revenue website indicates no county has rescinded PTELL by referendum, there is no precedent established for the transition to a non-PTELL county.

The maximum tax rates, if PTELL were rescinded, could be the much lower maximum rates prior to the effective date of P.A. 94-976, or the rates could remain at their current level.

A legal opinion should be obtained from the Illinois Attorney General through a request from the State Attorney’s office, as was sought prior to the City of Rockford’s referendum on the retention of Home Rule in the early 80’s.

The alternative to rescinding PTELL is to maintain the status quo and hope that future home values will eventually begin to increase the Equalized Assessed Valuation, resulting in lower tax rates.

However, the taxing districts would still maintain their current tax levies, regardless of tax rates, and without voter approval.

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