Area School Districts Hear Presentation on One Percent Sales Tax Dynamics
By MICHAEL MILLER | For The Prairie Advocate News
MOUNT CARROLL – The West Carroll School Board, as well as officials and representatives from Eastland and Chadwick/Milledgeville, listened to a detailed presentation from representatives of Stifel, Nicolaus and Co., a national brokerage firm and a leader in Illinois bond underwriting, on the benefits, rules and dynamics of a potential one percent sales tax on goods purchased within the County, at a special public meeting held on September 4th, 2013 at the West Carroll Intermediate School gymnasium.
All West Carroll Board members were present, including Mark Klein, Dawn Rath, Jerry Anderson, Bev Kilpatrick, John Brigham and President Mike Highland as well as Superintendent Craig Mathers. Dr. Mark Hansen, Superintendent of Eastland Schools and Timothy Sherman, Superintendent of Chadwick/Milledgeville were also in attendance, as well as Elmer Rahn of Chadwick/Milledgeville. Principals Bob Lamb and Julie Katzenberger were also in attendance, as well as an extremely small crowd of local residents, including Thomson Board President Vicki Traeger, Mike Risko of the Mt. Carroll City Council, and a number of representatives of the press.
Mathers presented some opening comments, saying that the one percent sales tax had been discussed as a method of generating revenue for the school districts, exampling financial needs of West Carroll, including the installation of a new boiler system at the Middle School which will be around $300,000.00 in costs as well as the necessity to unearth a fuel storage tank at the High School, which will cost about $100,000.00 plus change.
These costs will come out of local tax dollars, Mathers said, and could come out of a one percent sales tax if such a measure were approved. This tax would benefit not only West Carroll, but as a county tax, would benefit all schools within Carroll County, Mathers added.
The superintendent said that the Board had also talked about using the tax to abate local taxes, to drive down local taxes within the West Carroll School District.
Dr. Jim Burgett, First Vice President of the company, opened his comments by noting that they were not there for any purpose other than to provide information regarding a county sales facilities tax. Burgett said that when the legislation relating to this tax was introduced in 2007, their company realized this was a potential new revenue stream and a “tax swap” for Illinois school districts. He added that at this point, the state of Iowa has instituted the one percent sales tax and this tax can “be counted on, comes in on a regular basis and is ample enough to provide facilities.”
Burgett went on to detail some of the highlights of the one percent sales tax and the implications that passing it entailed. The sales tax would allow county voters to approve a sales tax to fund school facility costs; the maximum percentage of tax would be one percent, going up in 1/4 percent increments. Every county in Iowa has this tax in place. In August of 2011, the law was amended so that the County Board no longer has to approve the tax. This is a county wide tax on retail sales used only for facilities.
What will be taxed by the one percent sales tax? According to Burgett and the company’s handout, everything but the following items; cars, trucks, ATVs, boats and RVs, mobile homes, unprepared food, drugs (including prescriptions, over the counter and vitamins), farm equipment and parts, and farm inputs.
A handy rule of thumb he mentioned was that “If it is not currently taxed, it will be be taxed.” Fuel will be taxed.
What it Can and Can’t be Used For
A detailed list of what the tax can and cannot be used for was also supplied. This tax may be used for new facilities, additions and renovations, security entrances, safety and disabled access, ongoing maintenance, architectural planing, durable equipment (non movable items), fire prevention and life safety, land acquisition, energy efficiency, parking lots, demolition, and roof repairs. This tax may also be used to refund bonds or abate property taxes. It may also be levied to pay bonds issued for capital purposes.
The tax may not be used for direction instructional costs, text books, buses, detached furniture and fixtures, computers, moveable equipment, operating costs, salaries and overhead.
The tax may be used, generally, in four ways. It may be used in a “pay as you go” basis for capital projects. It can be used to issue new bonds for current capital needs, with those bonds being supported by the sales tax. It may be used to retire existing debt issued for capital purposes; in this method, taxes can be abated and qualifying debt can be refunded. The funds generated could also be saved and interest accrued.
Any combination of the above may be used.
Burgett explained two ways to decrease property taxes that would be granted by the one percent sales tax as well. A district could abate or decrease existing property taxes by using the sales tax funds to pay off outstanding building bonds, with the property taxes being reduced on residential, commercial and industrial properties.
A district may also avoid levying property taxes by using sales tax funds to pay for facility projects that would have been paid for with property taxes.
Sean McCarthy, Second Vice President, took the floor and explained the potential benefits to the district in real numbers, should the tax be passed. He explained that West Carroll, for instance, would be projected to receive an annual amount of $584,184.00.
Another important fact noted by Burgett that was the money generated by the tax “follows the student.” For example, if a student lives in Carroll County but goes to school in Pearl City, that money will go to Pearl City.
Mt. Carroll, Thomson and Savanna all currently have sales tax rates of 6.50 percent.
How Does It Happen?
What needs to take place in order for a sales tax hike proposal to be put on the ballot is the following: the school boards of the county in question must pass a resolution, and when the school boards of that county that represent more than 50 percent of the resident student enrollment in the county adopt those resolutions, the Regional Superintendent must certify the question to the County Clerk. The Clerk will then place the proposal on the ballot at the next regularly scheduled election.
The tax can be passed with a simple majority of votes across districts, i.e. it could fail in one district but if overall the vote for is more than the vote against, it would pass. The tax would be imposed after this voter approval. The election results and ordinance must be certified by the County Clerk and filed with the Illinois Department of Revenue. The flow of money would be received monthly beginning approximately four months after the tax goes into effect.
Districts can bond up to 80 percent of what the revenues generated by the tax are. For instance, if you received $500,000.00 per year in revenue, you could only bond up to $400,000.00.
Supt. Sherman asked if Burgett had seen a negative impact on local economy due to raising the sales tax. Burgett answered that they have tracked this data and they have found that there has been a “negligible effect” either way. He said there are actually instances where the local economy was improved once the shoppers were reminded that shopping in that economy allows the money to go to their schools.
Ms. Traeger asked, in light of a comment by McCarthy that no future school board can be obligated by the actions of a previous one regarding financial commitments, if that meant that this school board could not promise Thomson that their facility would remain open if the measure passed. McCarthy said that the measure would give the power to the boards to do what they want, but that she was correct, there were no guarantees and Burgett agreed.
Highland asked if Dr. Hansen had any comments regarding the presentation. Dr. Hansen noted that surrounding counties were gradually adopting this one percent sales tax, and this makes him think that just as when Carroll County residents shop in these areas, they are contributing to those facilities. He’d like to think that when residents of those communities come to Carroll County they would be contributing to Carroll County facilities. He also added that the last time this came before the Eastland Board, they held a position of neutrality, and that while he couldn’t say how they would react this time, he would share with them his own personal feelings about the issue.
Sherman, when asked the same question, said that he’d heard some “intriguing” things and that he would like to think that local shoppers would be eager to help support their own facilities just as he often supports those of other areas when he shops there. He deferred to Rahn for further comments, and Rahn said that in discussions with the Board, they were “unanimous” in support of the one percent sales tax.
Suzanne Woods asked what the reason was that boards were limited in what they could spend the revenues on, and Burgett said that the reality was that if the revenues could be spent on salaries, it would be perceived very negatively by the voters.
Mathers noted that the West Carroll District has a large free and reduced population, and that he’s heard the argument that the one percent sales tax might be one way that those who aren’t home owners that don’t pay property taxes could still support the district.
Burgett expanded on this, saying that when it comes to tax reform, property tax is not considered equitable while income and sales tax are since everyone pays sales tax. Burgett said for districts that take the revenue and can’t reasonably reduce property taxes, it almost always exceeds the increase that the property owners will pay in that one percent tax on retail goods, so this is in effect, a tax reduction.
Traeger said that this tax really is a regressive tax, and that Carroll County’s large segments of retired and out of work individuals would be impacted greatly by the tax increase. She said that this county doesn’t have a “magic Walmart” like many others.
“There’s not a huge choice for people who can’t afford to jump in their car and drive to Sterling to go to Menards or to Walmart in Clinton...”. She emphasized that she was not saying she was against the measure and noted the good points of the presenters, but added it was vital that they address these economic issues and speak to the concerns of these groups she mentioned.
Burgett answered that they weren’t there to sell the tax, just to provide information. He added that if school districts had insufficient funds to finance their facilities, they might be forced to ask the voters for bonds, those bonds were paid for by raising property taxes, and low income individuals would have their rent raised as a result.
Sherman asked if there was any data correlating improved facilities and increased enrollment. Burgett said that it really is jobs that bring people to a community.
Mike Risko, delivering the audience’s closing comments, said that he felt that it was “almost mandatory” that the county do this, and that it was vital to educate the population regarding the need and benefits of the one percent sales tax.