April 14, 2015
What local government purposes, services, or expenditures does your property tax dollar fund? Governments traditionally use property tax revenues to pay for a wide variety of expenditures, including employee salaries and pensions, debt service and administrative costs. But, there are significant differences among local governments regarding the use of these revenues.
This blog post describes how property tax dollars were proposed to be spent in FY2015 by the three largest governments in northeastern Illinois: the City of Chicago, the Chicago Public Schools and Cook County.
It is important to note that there is a one-year lag in Cook County between the approval of a property tax levy and the time it is reflected in a new tax rate. Thus, taxes approved for a 2015 budget year will not be paid until 2016.
City of Chicago’s $862.9 Million Levy
The City of Chicago’s 2015 budget proposed a total property tax levy of $862.9 million. This includes $831.5 million for City purposes as well as an additional $36.6 million levied on behalf of City Colleges of Chicago. As a home rule unit of government, the City is exempt from State legal limits on property tax extension increases. However, the City does have a self-imposed property tax limit that mirrors the state Property Tax Extension Limitation Law (35 ILCS 200/18-185 et seq.), limiting the annual increase in the aggregate property tax extension to the lesser of 5% or the rate of inflation. That limit has only been exceeded once, in 2008, when an 11.7% tax increase was approved.
The City of Chicago property tax levy is used for four purposes:
- Debt Service: In FY2015, the largest use of property tax dollars will be for debt service. Approximately 45.0% or $390.6 million will be used for this purpose. These are principal and interest payments on the City’s tax-supported bond issues.
- Pensions: Employee pension costs will consume 41.4% or $359.0 million of the total levy.
- Chicago Public Library: Roughly $81.9 million or 9.4% of the levy is earmarked for the Chicago Public Library, which is a department of city government. Since 1996 the library has been listed as a separate line item on Chicago property tax bills. A portion of the library levy funds debt service on bonds issued for the library’s capital program, but some of the levy pays for short-term borrowing to fund library operating expenses. The City issues short-term debt (tax anticipation notes) for the library in order to bridge the roughly 18-month gap between approval of the levy and collection of taxes.
- City Colleges Debt Service: The remaining 4.2% of the total levy or $36.6 million is levied by the City to pay debt service on capital improvement bonds for the City Colleges. This is done to compensate for the expiration of the City Colleges’ authority to issue debt through the Public Building Commission (PBC). Debt service limits for the City Colleges were fixed at the time the property tax cap law was implemented in 1995. At that time the District’s debt burden consisted of obligations issued through the PBC and paid for through an Operations and Maintenance (O&M) levy. When these obligations were fulfilled, the O&M levy was eliminated, which required the District to seek other ways to issue debt. The City of Chicago, by means of an intergovernmental agreement, now levies property taxes that are used to pay for Public Building Commission obligations that fund City Colleges projects. This arrangement results in no net increase for property taxpayers, but rather transfers part of the City Colleges levy to the City of Chicago. The effect is an increase in the City of Chicago tax rate and a decrease in the City Colleges tax rate.
Chicago Public Schools $2.2 Billion Levy
Chicago Public Schools (CPS) expects its FY2015 property tax revenues to total nearly $2.2 billion. CPS is a non-home rule taxing body subject to the Property Tax Extension Limitation Law (PTELL) since tax year 1994. Tax extensions on existing property are only allowed to rise each year by the lesser of 5% or the increase in Consumer Price Index.
CPS property tax revenues are used for the following three purposes:
- Just over $2.0 billion, or 92.8%, is distributed to the General Fund to finance CPS operations.
- The second largest amount, $106.4 million, or 4.8%, will be designated for the Workers and Unemployment Compensation Tort Immunity Fund.
- The remaining 2.5%, or $55.2 million, will be used for the Public Building Commission lease and debt service payments.
Cook County’s $741.6 Million Levy
In FY2015 the Cook County gross property tax levy will total $741.6 million. Property tax revenues are distributed to six major funds: Corporate, Elections, Public Safety, Health Enterprise, Bond and Interest and Pension (also known as the Employee Annuity and Benefit Fund).
- Three of the funds, Public Safety, Bond and Interest and Health Funds, will consume 77.5%, or $558.6 million, of the base levy in FY2015.
- The Bond and Interest Fund will consume the largest amount of the base levy at $218.6 million or 30.3% of the total. It is used to pay principal and interest costs on the County’s tax supported debt issues.
- The Public Safety Fund will spend 26.4%, or $190.0 million, in FY2015. These monies fund some of the expenditures for the State’s Attorney’s Office, the Sheriff’s Office, the Cook County Jail and the Circuit Court system and all other related public safety expenses.
- The Health Enterprise Fund will be the third largest expenditure for levy resources in FY2015 at 20.8%, or $150.0 million. These dollars are used to assist in funding the County’s system of hospital and clinics.
- The Pension Fund will consume 18.1%, or $130.3 million, of property tax revenue for FY2015. It helps pay for the County employee retirement system.
- The Civic Federation combines the relatively small Corporate and Election Funds. These monies fund general administrative operations of the County as well as elections in suburban Cook County. In FY2015 the portion of the levy dedicated to these funds will be 4.4%.