Suburbs could lose $100M in business taxes to state

The school year has just started and Northwest Suburban High School District 214 officials are already plugging another budget hole created by the state's financial crisis.

The district stands to lose more than $1.8 million in personal property replacement taxes if the Illinois Department of Revenue's projections pan out. The loss is due in large part to the state taking nearly $300 million of the funds, about $200 million more than last year, according to the department's reports. Across the suburbs, scores of local government agencies are anticipating a combined loss of more than $100 million to the state this year.

"It's disappointing and not necessarily unexpected, but that's a significant amount," said District 214 board member Mark Hineman. "I did not know that it was going to be that much."

The financial hit District 214 is expecting is the third-largest amount for any suburban school district, behind Joliet and Valley View in Romeoville, according to state estimates. District officials said the revenue loss was somewhat anticipated but they will still need some "cost containments" to balance the budget.

Adding Chicago, Cook County, the five collar counties and hundreds of suburban local governments brings the loss to nearly $224 million compared to what was collected last year, according to a Daily Herald analysis of IDOR forecasts.

Local governments across the state received almost $1.5 billion in personal property replacement taxes from businesses last year. Meanwhile, revenue department researchers estimate the haul this year to be $349 million less, mostly because legislators are raiding the fund for $297 million this year. They took $100 million last year, IDOR reported. It's unclear what legislators earmarked the money for, but the lack of a state budget for the previous two years created billions of dollars in debt.

"This is horrible public policy," said Ralph Martire, executive director of the Center for Tax and Budget Accountability, a bipartisan government finance think tank based in Chicago. "The state's status as a deadbeat in funding (schools) has literally resulted in local governments starved of the resources they should have."

This anticipated revenue loss is coupled with stagnant income tax revenue for many local governments despite a statewide rate increase. Illinois also imposed a 2 percent service fee this year on collecting and distributing local sales taxes that will cost 64 municipalities and suburban counties collectively almost $48 million more.

Because most local government finance officials are used to state funding shortfalls, many were conservative with revenue forecasts for these particular tax dollars. But some were not conservative enough.

"It hurts. We thought we'd get a 10 percent reduction and that's what I budgeted, so we're going to be short since it's more than twice that," said Mary Kalou, assistant superintendent for business at Maine Township High School District 207. "It would have been nice if we knew earlier since this is almost a 24 percent swing from one year to the next."

Kalou believes the district's health insurance premiums won't cost as much as originally estimated, and that will help make up the more than $1.3 million anticipated gap.

Barrington Hills Republican state Rep. David McSweeney worries local governments will raise taxes to make up the expected loss.

"They all have an unbalanced budget now, so that could result in a property tax increase," he said. "This is just another example of why this (state) budget was a bad idea."

The personal property replacement tax is assessed on profits and investment income of corporations, small businesses, trusts, partnerships and even public utilities, according to the revenue department. It was created in 1979 after another tax on the value of business equipment was eliminated.

The anticipated shortfalls are going to hurt some local governments more than others. That's because the funding method for the personal property replacement tax is based on an archaic formula devised by legislators almost 40 years ago that benefits government agencies with larger corporate footprints at that time.

That means towns like Chicago and Aurora stand to lose much more than places like Naperville and Hoffman Estates, where most of the corporate development happened after the tax was imposed. That's also why school districts 214 and 207 will be harder hit than school districts like Elgin Area Unit District 46 and Indian Prairie Unit District 204 in Naperville and Aurora, even though U-46 and District 204 have many more students.

The tax shortfall also won't affect towns like Schaumburg because the village didn't tax personal property of businesses, so it can't receive the replacement tax.

Some government officials are not ready to hit the panic button just yet.

"The estimates are just that - estimates," said U-46 spokeswoman Mary Fergus.

The revenue department estimated local governments would receive less than $1.2 billion last year, but revenues came in nearly $300 million more than expected.

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  Northwest Township High School District 214 stands to lose more than $1.8 million in business tax revenue, mainly because the state is taking about $300 million of the funds statewide. Bob Chwedyk/, April 2010
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