Democracy on the Front Lines
City Administrator’s Blog
Walter Denton
January 16, 2008
In my last blog, I presented the breakdown of how your property taxes are distributed among the various taxing bodies. I received some feedback questioning whether I was trying to make the City look good at the expense of the schools for the high property taxes. My purpose was to present the facts of how property tax dollars are distributed, not to place blame.
The City Council decided long ago to keep its property tax rate low so the schools would have the ability to use the property tax to make O’Fallon’s schools better. As a result, the City’s tax rate is small compared to other taxing bodies and the schools get to utilize the property tax to improve education. Instead, the City relies on sales tax for general revenue. Cities’ revenue streams are much more diverse than school districts.
This blog is intended to be Property Tax 101, where I will try to explain how property is assessed, how the tax rate is determined, and how the township multiplier affects your tax bill. My comments are from the vantage point of city government. The schools obviously play a part in this as well, but I do not know enough about school funding to address it properly. The multiplier and EAV affect the schools differently than cities and their situation is fundamentally different.
That said, the calculation of your tax bill is the same either way, so let’s get on with it.
How is Property Assessed?
According to the Illinois Property Tax Code, all real property must be assessed at a uniform percentage of market value, which is 33.33%. The Illinois Department of Revenue manages the inter-county equalization of assessment program through the filing of the PTAX-203 Real Estate Transfer Declaration. This is one of the many forms you sign when close on a piece of property and it contains the property’s sale price for Department of Revenue’s database. The overall purpose is to ensure that all property is valued equally and to assure that every homeowner in the state is taxed at 33.33% of the Fair Market Value. Therein lies the catch. . .
State law requires that counties must assess all real estate every four years to make sure all property is assessed at the Fair Market Value. This is known as the quadrennial assessment. Unfortunately, St. Clair County has not performed any quadrennial assessments in 20 years. As a result, the county has utilized the Township Multiplier as an attempt to equalize assessments with Fair Market Value.
How is the Township Multiplier Calculated?
The process is fairly simple. As stated above, each piece of property that is sold must file a PTAX-203 form with the state. The state compares the sale price to the assessed value to see if it was more or less than the assessed Fair Market Value (FMV). If houses are selling for more than the FMV, then they are adjusted with a multiplier.
The township multiplier was created by the state legislature to maintain assessment levels statewide and to provide a uniform basis to increase property assessments for school funding. The problem is that the multiplier imposes blanket assessment increases over an entire township rather than specific neighborhoods.
In the end, your property tax is calculated according to this formula:
Taxable Value X Tax Rate = Tax Due
How is St. Clair County applying the Township Multiplier?
Since the county has not done the quadrennial assessments, the county is using the multiplier as the replacement to assessments rather as a supplement. The County Board of Review takes all sales and lumps them together by township and all property goes up by the multiplier supplied by the Department of Revenue.
There are two problems with this method:
1. By placing a blanket multiplier on an entire township, properties in a fast-selling area are under-assessed and properties in a slow-selling area are over-assessed. While the overall number may be accurate, it is possible that none of the properties are valued fairly.
2. There is no provision in state law to adjust the multiplier when property values are declining. By law, the Department of Revenue only includes property sales that have increased over the previous assessment. As a result, the multiplier increases even in a bad housing market (such as now) and the multiplier’s assessment can be much higher than the actual market value of the property. If the multiplier continues at the current five-year average, the assessment every piece of residential property will increase 390% over the next twenty years (due to compounding).
Other Illinois counties assess properties regularly and do not seem to have problems with the multiplier. There may still be complaints about the taxes they pay, but the tax bill is tied to an actual assessment of their property.
How are Tax Rates Determined?
Each year, the City looks at last year’s budget to determine the need for the following year’s revenue needs. The needed dollars are divided into the Equalized Assessed Value (EAV) of the City.
For example, the City requested $224,991 for its 2006 General Fund and the EAV is $542,633,861, so the rate would be 0.041827 or four cents per $100 of Fair Market Value (FMV). For a $100,000 home, your tax is calculated by 100,000 X 33.3 – Homestead Exemption X 0.04 = $11.77 for the General Fund.
The problem lies in both the dollar request and the EAV. The local taxing units request and control the budget request, but the state and county control the EAV.
What can the City do?
Ultimately, major changes must be made at the state level. The state uses the multiplier to raise education funds without having to vote to raise taxes. The multiplier only works during periods of housing growth and rising real estate values. Reform will take a complete makeover of state school funding. This is a very big and very difficult job, and it is unclear whether there is any momentum to do this in Springfield.
Locally, we think it would be helpful for St. Clair County to run fair and equitable quadrennial assessments. We have met with county officials about this and they say they lack the financial resources. Townships should be assessed by neighborhood, and not as a whole, so proper assessments can be made between fast-selling and slow-selling areas. Equalization must be accomplished by keeping assessments current and not using the multiplier. The current system under-values some property but applies an unrealized paper gain in value to a large percent of the properties.
What’s Next?
The City intends to conduct more research on how property taxes are affecting O’Fallon residents. In particular, we want to know how property taxes will impact O’Fallon homeowners over the long term.
In the short term, we will keep the City’s tax rate under control by abating the multiplier in our calculations for the levy and using our Home Rule advantage to assure we only receive what we ask for in tax revenue. Therefore, your City property taxes should be the same as last year.
The situation is not so simple for the school districts. Their state funding is based on EAV, so as their EAV increases their state funding decreases. Abating the multiplier would be a double whammy for them and would have deeper consequences than for the City (which does not have funding tied to EAV). But as I mentioned before, I am not an expert on school funding and I cannot get into much more detail than that.
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