The Northwest Herald electronically published an article yesterday (presumably running in Monday, December 11th’s print edition), titled “Crystal Lake’s property tax rate to fall, but homeowners still could pay more.”
The opening line after the headline sounds promising:
The city’s property tax rate is expected to decrease 1.28 percent on next year’s tax bill.
Fantastic, no? If the property tax rate is expected to decrease 1.28 percent, that means your taxes for the city will go down by about 1.28%, right? The city’s representative even pretends like this is possible:
It is difficult to estimate how much each homeowner will have to pay the city, Crystal Lake Finance Director George Koczwara said.
Whenever a bureaucrat talks about the percentage tax rate, you should assume he’s hiding a tax hike.
Telling homeowners to look at the property tax rate is an easy way to hide tax hikes. Here’s the correct way to look at it, through an analogy.
Imagine a hypothetical city that has 10 houses in it (and no other properties), and each of the houses are worth exactly the same amount. The hypothetical city in 2016 requested a tax levy of $10,000 for that year. No matter what the assessed valuation of the homes are, if they are all worth the same, each homeowner pays $1,000 in taxes. It’s easy to see that a $10,000 tax levy divided by 10 identically assessed houses is going to be $1,000 per house, no matter what.
If the hypothetical city requests a 2017 tax levy of $15,000, again assuming each home has the same assessed valuation, each homeowner is now paying $1,500 in taxes. The takeaway is that if a unit of local government increases its levy, taxes on average must increase in lockstep.
Bringing property valuation (often called “EAV,” or the Equalized Assessed Valuation of your property after the township and county set your assessment, and the county and state equalize those assessments) into the picture only serves to hide the fact that a unit of local government is hiking taxes.
Don’t believe me? Let’s factor EAV into the hypothetical city’s tax hike. Again, in 2016 the hypothetical city requests a $10,000 levy. In 2016, each of the 10 houses in the hypothetical city are worth $100,000. So, the tax rate for 2016 is 1% (the $10,000 levy divided by the total tax base of $1 million (10 houses times $100,000 each). The 2016 per house tax bill is the same $1,000 as before. In 2017, the hypothetical city increases its levy to $15,000, but the EAV for each house is now $200,000. So, the tax rate for 2017 drops to 0.75% ($15,000 levied divided by a total tax base of $2 million), and the politicians and bureaucrats celebrate and pat each other on the back for pretending to cut taxes. Each taxpayer, despite his or her tax rate dropping now is paying $500 more per year.
When talking about tax cuts, the only thing that matters is the levy. If the levy goes up, the average taxpayer in the city, as a matter of simple arithmetic, has to pay more. Talking about tax rates only hides this reality.
We can say with absolute certainty that taxes are going up in Crystal Lake.
How do we know? Crystal Lake is in the process of approving its 2017 levy. Because we pay property taxes one year in arrears, it sets its levy for 2017 at the end of 2017. Crystal Lake is requesting a 2017 levy of $17,070,984. In 2016, Crystal Lake levied $16,488,826. Because Crystal Lake wants to hike its levy 3.53% for next year, taxes on average have to go up for Crystal Lake residents by 3.53%. Sure, you might be one of the “winners” whose assessment decreased (which, by the way has nothing to do with your elected Crystal Lake officials), but that does not change the simple fact that Crystal Lake has hiked taxes again.
It’s only a tax hike of 3.53%, is that enough to be upset about?
It sure is. In Illinois, we have something known as the Property Tax Extension Law Limit (PTELL). Without getting into too many details, most units of local government have a maximum amount by which they can increase the levy each year. The cap is either the rate of inflation measured as by CPI or 5%, whichever is lesser. For 2017, CPI was 2.1%, so most units of local government can only increase their levy by 2.1% for next year.
Crystal Lake, however, is not constrained by PTELL because it is a “home rule” unit of local government. It is free to hike your taxes however much it wants to.
Despite PTELL not constraining Crystal Lake, you should ask yourself: If almost every other unit of local government in the county can get by with a 2.1% tax hike or less, why does Crystal Lake need more? And why are they so proud of this fact?