SPRINGFIELD – As school districts continue to wait for an end to the state’s school funding battle, which would allow them to receive payments, a new financial challenge has emerged from Springfield.
The Illinois Department of Revenue just released its fiscal year 2018 projections for how much schools and other local taxing bodies will receive from the state’s personal property replacement taxes. The fiscal year began July 1 and runs through June 30, 2018.
The replacement taxes were instituted in 1979, to make up for money lost when local governments lost the power to impose property taxes on businesses.
The school districts were told earlier this year to expect a reduction in the tax distribution, largely because of an overpayment of $235.6 million in 2017, but when the estimates came out, they were surprised to find an additional reduction.
Tucked away in Senate Bill 6, the budget’s spending plan, was a diversion of $297 million from the replacement tax fund to pay for items that had previously been paid for through the general fund. The end result is that replacement tax estimates for 2018 dropped from $1.47 billion to $1.12 billion – a reduction of 23.8 percent.
Among area school districts, Erie and Sterling stand to lose the most in this scenario, with Dixon also taking a hit, to the tune of nearly a half-million dollars.
Erie receives nearly $4 million a year from business property taxes, thanks largely to the Exelon nuclear power plant in Cordova. The district would stand to lose an estimated $904,014 in replacement tax funds in 2018.
“This is coming at a time when the schools are still waiting for their first state aid payments of the year,” Erie Superintendent Brad Cox said. “More than half of what we would lose is what was skimmed off the replacement tax to pad the state’s budget.”
While Cox says his district is in a much better position than most to weather the storm, it’s still a big hit to its revenue stream.
“We’re fortunate that we’ve been able to put $4 million in reserves the last few years,” Cox said. “Erie will be just fine, but not a lot of districts are in that situation.”
Cox said plans to “fleece” the replacement tax started about 6 years ago when the state decided it wanted to use it to fund regional education offices, and it has gradually snowballed.
“In 2016, when the appropriations bill was passed, $100 million was carved out to fund what had been general fund items, and this year, they took another $197 million,” Cox said.
Sterling’s projected replacement tax reduction would cost the district $635,949 in 2018. Sterling Superintendent Tad Everett said the funding formula now becomes an even bigger issue.
“We still have hope there is potential for districts that lose replacement tax money to regain some of those funds through the lack of adequacy model, but we don’t know yet,” Everett said.
In the evidence-based model set up in Senate Bill 1, targets are used to measure what is deemed an adequate education, and can be adjusted to account for various operational factors.
Everett said he first found out about the additional replacement tax losses over the weekend, and reached out to State Rep. Tony McCombie, R-Savanna. McCombie said lawmakers didn’t realize how much had been taken from the replacement tax until the new Department of Revenue projections were released. She said she was astounded by what she called a harmful budget gimmick.
“Every week we uncover more problems in the superficial budget passed in July,” McCombie said. “Included in this forecast was a reduction of $6 million to our local school districts and an additional reduction of $4 million to our local units of government.”
McCombie said the line item was in the budget, but until the Department of Revenue projections came out, lawmakers didn’t know exactly where that money was coming from.
About 6,500 local taxing districts, ranging from mosquito abatement districts to school districts, receive replacement tax money. Some of the school districts, however, were some of the biggest losers.
The biggest beneficiary of the diverted replacement tax money is the state’s community colleges. A total of $103.5 million is earmarked for the community college base operating grants, their biggest allocation from the state.
Melissa Dye, dean of business services at Sauk Valley Community College, said the base operating grants constitute 73 percent of the school’s state funding, and 7 percent of its total revenues. About 16 percent of the state’s funding comes from the equalization grant.
McCombie said the community college funding was supposed to be a temporary arrangement, but it somehow showed up again in the new budget’s spending bill.
“The $103.5 million was in the stopgap budget for community colleges for overpayment,” McCombie said. “Local government was aware of it, and it was agreed upon by both parties, but this year it was not agreed upon.”
Other new replacement tax fund expenditures include nearly $86 million to pay court reporters, about $33 million for Department of Revenue operations, and more than $18 million for local grants from the Department of Public Health.
McCombie said this is just the latest illustration of the need for fundamental spending reforms.
“This budget reflects an ever-increasing list of non-essential items that is impossible to balance without reforms to our structure or reforms to our spending,” McCombie said. “We have to stop the practice of sweeping money from our pensions, other funds and away from the people of Illinois.”
In addition to the financial implications, the superintendents were frustrated by the lack of communication.
“The worst thing is setting a budget and then finding out about these unplanned reductions,” Everett said. “Superintendents were never notified, and once again, Illinois schools are left holding the bag.”
Meanwhile, party leaders will resume closed-door meetings Thursday to pursue a compromise on the school funding bill. The Senate voted Aug. 13 to override Gov. Bruce Rauner’s amendatory veto, and when the House votes, it also needs a three-fifths majority to do the same.
The House needs 71 votes to override the veto and make SB 1 law. With only 67 Democrats in the House, at least four Republicans will have to vote against the governor’s changes.
BY THE NUMBERS
Estimated losses to some local school districts from the reduction in the personal property replacement tax
School district – 2018 estimate – 2017 payment – Loss
Dixon School District – $1,621,893 – $2,129,529.10 – $507,636
East Coloma Nelson – $132,291 – $173,696.72 – $41,405
Rock Falls Elementary School District 13 – $172,135 – $226,011.97 – $53,876
Rock Falls Township High School – $283,976 – $372,857.81 – $88,881
The full report
The fiscal year 2018 tax replacement estimates for all of the local taxing bodies in Illinois can be found on the Illinois Department of Revenue's website at shawurl.com/34vz, then click on the "Fiscal Year 2018" link.