The Squeeze Next Time

dollar-squeezedAfter much work by staff, Downers Grove has come up with a levy for next year that is, for practical purposes, the same as this year.  That’s a notable achievement.  On our real estate property tax bills next year there won’t be a larger dollar amount for the village’s slice of the real estate tax pie.

Too bad the other local taxing bodies didn’t follow the village lead, and have a Martin Tully asking for a flat levy, or a staff willing to take a hard look at expenses.  Most governing bodies crow about reducing the rate, which is totally meaningless, and misdirection at it’s worst.  Village walked the walk.

The levy accounts for about bit less than half of the total appropriation for the village.  If you think the village budget is around $40 million give or take, guess again; the total appropriation is around $100 million give or take.  The village receives about 22% of budget revenues from RE taxes, which is based on the EAV (Equalized Assessed Value) of our homes.  That EAV has gone up at a constant pace regardless of what the market values actually are in DG.  That may change starting next year, and that is a fire on the horizon for all taxing bodies.

Ask any realtor; home values in the area have gone down by at least 10% and we’re getting off light compared to elsewhere.  Our EAV went up again in 2008, this time about 6%.  Like in years past local taxing bodies can pat themselves on the back about an incrementally lower rate while still capturing more money each year for their budgets.  That may not happen next year in 2009, and will cause some budget problems for every taxing body the following year 2010.

That constant upward march of home value and prosperity has led to some lax cost controls, and an unsure knowledge of what we really have and need for financing moving forward.  At least one school district finances, 58’s, have been highlighted as so lacking in control or planning that in response the village voted in a total outsider to the board in frustrated response.  Don’t think 58 is alone.  Since I started taking a cursory glance at it, there’s several school districts in the same boat for the same reason; poor financial planning.  Most financial officers were educators first, not financial experts, or even financial planners.

The 99 board has said no problems, finances are in good shape.  Both 58 and 99 are running at a deficit, despite increases in captured tax revenues every year.  99 is also carrying about $60+ million in long term debt at the same time. At some point both districts will have to address that deficit spending.

The Park District budget climbs, but it climbs irregularly, one year going down 6.8% after going up over 17% the previous year.

Some people know this constant upward march is unsustainable.  When I mentioned this to two DG village staff employees regarding the village budget, that this year was rough and next year was going to be a back breaker, I got knowledgeable nods in return: they know it, they’re not happy about it, that’s just the way it is shaking out.  Most of our public employees have never lived through these kind of times; the pot has always grown larger because the homes have always increased in value.  There’s some key staff that understand this year’s village budget was tough, and that next year is going to make this year look easy.

The problem is, EAV has to have some connection to actual market value of the properties assessed, and at some point a correction will be made.  As market values drop, those willing to challenge their assessments have an easier time proving the EAV of their homes will be too high.  A simple look at comp sales will show a 4 bedroom 2 bath home’s value has dropped in DG, so the assessed value should drop also.  That’s may drown the township assessors office in protests and requests for reassessment, but the resulting effect is potentially devastating.

Think about this: the village staff worked long and hard, looked at every nook and cranny, have received due praise for their efforts to keep the village levy flat this year-to not spend more money.  After all that, they have reached a point where they do not need more.  So what happens next year?  Sales tax revenues are predicted to be down the entire year instead of just the second half.  Real estate reassessments that have typically been zone assessments will no longer rise, they may start going down, and if the township has used zone assessing in the past to raise EAV’s (which they have), then it stands they should be forced to use zone assessing to lower EAV’s.  And that, in a nutshell, is the coming fire.  Even EAV holding steady is a looming problem; if they go down it potentially generates severe shortcomings in RE based revenues.

For schools that rely on RE taxes that leaves two choices, asking for the tax rate increases to generate the levy (money) they need to operate, or cutting services and staffing to compensate for lost revenues.  It’ll probably be a combination of both.  It won’t be popular, and it won’t be without conflict and strife.

For the village the impact will come from lower sales tax revenues, higher employee costs, and lower RE tax revenues.

This will not have an immediate effect in the total tax dollars of our RE tax bill, but it will jack up the rates.   When the current economic problems are behind us, that will leave us with rates that will, when property values begin to climb again, cause our total dollars paid to skyrocket.  Question: At that time will taxing bodies drastically cut their requests, or try and quietly keep the increases.

Our schools and village services are largely based on residents ability to pay for them based on real estate taxes.  At the end of the day we pay for what we get: there is no low tax bargain to living here, there is no “something for nothing”.  We pay for what we get.

Postscript

1) After looking at the budget information on line for 58, 99, the Park District, and the village, it strikes me that a uniform public budget report would be a good thing.  Every separate budget has it’s own way of tabulating and presenting data.  Granted some budgets, like the village’s, are more complex due to departments and responsibilities, but trying to compare, say, personnel health care costs as a percentage of total appropriation among those four taxing bodies is a Sisyphean task.

2) Should DeVry chose to locate in Downers Grove, that will help as a relief valve on village budget pressure in 2010. About a year and a half ago, in response to candidate questionnaires sent out, I had written and later spoke about the need for our business and economic development sector to find the growth that would help ease the next economic downturn.  Prescient?  Hardly; I expected a gradual softening, a slowing of the rate of increase in home values, not a crash and burn global downturn.

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3 Responses to “The Squeeze Next Time”

  1. Bill White Says:

    EAVs may not fall as far and as fast as some hope and/or fear.

    This may be true:

    Real estate reassessments that have typically been zone assessments will no longer rise, they may start going down, and if the township has used zone assessing in the past to raise EAV’s (which they have), then it stands they should be forced to use zone assessing to lower EAV’s.

    . . . should be forced to use zone assessing . . .

    and

    . . . shall use zone assessing to reduce EAVs . . .

    are very different statements.

    Yes, budgets shall be tight however I do not expect EAVs to fall as rapidly as they have risen.

  2. Art Jaros Says:

    MT pens: “Too bad the other local taxing bodies didn’t follow the village lead, and have a Martin Tully asking for a flat levy, or a staff willing to take a hard look at expenses. Most governing bodies crow about reducing the rate, which is totally meaningless, and misdirection at it’s worst. Village walked the walk.” Shame on you, MT. The Park District has done better than that for the same 2008 levy year; the District’s own dollar share of the levy DECREASED from the 2007 amount. As I have explained elsewhere, the Park District is required to include the appointed SEASPAR Board’s dollar levy within the aggregate Park District levy. Over the “no” vote of D.G.’s SEASPAR Board representative, the SEASPAR Board approved a greater than 7% increase in the SEASPAR dollar levy. This amount was included in the Park Board’s recent dollar levy ordinance. But the dollar levy ordinance on a combined basis–SEASPAR and the Park District’s own items– keeps the combined tax levy dollars at exactly the same level as for 2007. This means that the Park District’s own share of the tax levy dollars decreased by the exact amount of the SEASPAR increase so the Park District is making do with less even as its utility, fuel and labor costs increase. This decreased amount of levy dollars will impact the District’s budget that is just now starting to be formulated and which will be adopted in late Spring, 2009 for the fiscal year commencing June 1, 2009. Moreover, because there is still some newly constructed property coming into the 2008 property tax base from a limited amount of new construction and also some small annexations adding to the tax base, that unchanged (2007 to 2008) amount of 2008 combined SEASPAR/Park District tax dollars now gets spread over a larger physical stock of property, meaning that existing property owners on average will see an actual reduction in their combined SEASPAR/Park District property tax bill.

    It is unfathomable to me why Mark credits the VC and not the Park Board.

    I would also like to point out that budgets–which MT notes can vary widely–are far less important than actual results. That is, a government’s audited CAFR (“Comprehensive Annual Financial Report”) is a surer guide to a government’s finances than is a budget adopted as a “gameplan” at the start of a fiscal year.

    Under traditional governmental fund accounting, budgeted amounts can vary widely because the proceeds of bond issues used to finance land acquisition and other long-lived capital improvement show as receipts and the purchases show as expenditures. It’s the same silliness as saying that when a family purchases a home, its expenses have skyrocketed on account of the outlay of the purchase price and its income has skyrocketed from receiving the benefit of the lender’s mortgage money!

    That’s one of the reasons GASB34 (Governmental Accounting Standards Board Statement #34) now requires a second set of financial reporting modelled after standard business accounting (GAAP=generally accepted accounting standards).

    Art Jaros, Commissioner, The Downers Grove Park District

  3. markthoman Says:

    Shame on me? Geez Art, I count on you to keep track of the PD budget.

    But you are right, I didn’t know. And further, until Tully made a specific point of bringing it up, I hadn’t really considered the impact of the Library budget on the village. This year the village levy was flat while the Library levy was up, meaning the overall non-library village levy actually went down, just as the PD budget sans SEASPAR also did.


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