Sales Tax Increase for School Facilities

How will it affect you?

by Tom Mulligan

April 04, 2010

The Springfield School District and the Chatham School District recently approved a Resolution calling for an increase in Sales Tax for School District Infrastructure. This resolution relates directly to the articles that have been in the Springfield State Journal-Register lately regarding a proposed sales tax increase to fund school district facility projects. As a result, it is a natural response as a Sangamon County resident to ask, “What would be the impact on me personally and the Riverton School District?” First of all, no one wants to pay more taxes (especially in this economy), but this feeling is precisely why this concept is extremely beneficial for property tax owners in Sangamon County and the Riverton School District. Let me explain.

Schools are funded by local property taxes. When a school needs to build or improve facilities, the school district runs a referendum to ask the voters to raise their own property taxes to pay for the project. Consequently, if the voters approve, the only taxpayers who shoulder the cost are the people who own property in the school district. Therefore, a school district may borrow millions to pay for the project and pay off the bonds over a 20-year period, similar to a home mortgage. This debt is now on our local property tax owners until it is paid in full over the duration of the loan, plus interest. The bond payment is automatically levied each year on the property tax bill until it is paid off. In our case, our school district passed a referendum in 2005 for $8.8 million, which we currently are paying on to the tune of $750,000 a year. This equates to about 68 cents per $100 of EAV (Equalized Assessed Valuation) on a piece of property. Therefore, if our tax rate currently is $4.04, it would only be $3.36 if we didn’t have the bonds for the building projects. This is why a sales tax to be used for bonds to build school facilities or improve school infrastructure would be good for local property tax owners. The sales tax revenue generated in Springfield and the surrounding businesses in the county from purchases by Springfield area residents, visitors, and tourists would be used to offset our local property tax. Due to our location near the Capitol, along with having several interstate pipelines in our county and tourist attractions, we are in an ideal location to benefit from outsiders offsetting our local property taxes. Revenues generated from outside sources would go towards paying off existing bonded debt, which lowers our local property taxes and could generate enough revenue to possibly never run a building referendum in the future. Obviously, we shop in Springfield as well and pay sales tax, so let’s run the numbers and get into the specifics of how this would positively impact us.

First of all, the County Board has the ultimate say in imposing this tax and has a say as to how much the tax would be if it were to pass. Only the county school districts would receive revenue from this tax. It would only go for the sole purpose of school facilities and to pay off debt associated with school facilities, essentially abating property taxes. It cannot be used for operating costs or salaries. In addition, the money follows each student in the county equally – so the more students, the more revenue for the district. For the purpose of explaining the financial impact, we will operate from an assumption of a 1% county sales tax increase.

What would NOT be taxed?

Qualifying foods sold at grocery stores
Drugs / medicines
Farm equipment and parts
Farm inputs
Cars, Trucks, ATV’s, Boats and RV’s (licensed vehicles)
Mobile Homes

What are the projected financial implications for Riverton/Spaulding residents?

Currently would generate around $693 per pupil in the county
Equating to almost $1 million in new revenue per year for our school district
In order to produce that amount of money in property tax, the district would have to raise property taxes by $0.95 per $100 in EAV; the median market value of a home in our county is $114,000 - which would require a $363 property tax increase per year to generate the same amount of money
That same homeowner would have to spend $36,000+ every year on qualifying taxable items to equal what a property tax increase would have cost; you can multiply that figure based on your own property values, and you will see that it would be extremely difficult, if not improbable, that you would spend that much on consumable and material purchases in Sangamon County to pay that much sales tax year after year
It is a more equitable manner to fund schools, taking the burden off of just those who own property in the district
(These estimates are based on the 2008 Tax Levy)

What could the Riverton School District do with the revenue generated?

Pay off existing building bonds ($8.8 million), essentially lowering property taxes by sharing the expense with people not living in our school district
Future building projects and infrastructure improvements would be financed with this new revenue stream, not through property taxes in the future
Annual building improvement budget funds could be moved over to the education fund to pay for educational programs.

Although there are several aspects, including the County Board’s position, that have to be taken into consideration before this concept moves forward in Sangamon County, it is imperative that our community is informed on this issue since it has been discussed a lot lately. It is my hope that every resident in our community understands the impact of such a proposal on our school and community. As we are all aware, great schools and facilities increase our property values. Therefore, the issue is not whether or not we will pay taxes – it is a matter of deciding whether we want to pay for our schools by burdening local taxpayers or share the burden of the cost with those who do not live in our district. As a property taxpayer myself, I prefer the latter.