Tuesday, March 16, 2010

Tax Caps

Tax Caps are nasty things. They are passed in counties and people think their taxes will not go up. But they do and they don’t understand why. For those taxing bodies under the caps such as villages, townships, schools, and libraries they are frustrating to work within. Over time tax caps can erode the ability of a taxing body to levy enough funds to run their operations. How does this happen?

When the county clerks figure the amount of money that is being raised, all of the tax rates are combined into one pot. Unfortunately, not all tax rates are equal. Retirement taxes have an unlimited tax rate. For instance when IMRF payments go up, the library taxes for the entire increased amount. Recently some IMRF rates have gone up as much as 8% or more. When you can only increase the total levy amount by 5% or the cost of living which ever is less and an expense such as IMRF goes up, libraries and other taxing bodies have a problem.

Here are the numbers as an example. If the total tax rate is .22 and the IMRF portion of that goes from .03 to .08 that means that when you had .19 to spend for the rest of the budget you now have only .14. If you take away building and equipment .02 then only .12 is left. The corporate rate goes down and the money available for salaries, utilities, books, etc. goes down. Where you may have had the base rate of .15 for a library you are now at .12 and that is even below the Per Capita rate requirement.

What can a library do when this has happened to them? They have been fiscally responsible, tax conservatively and still there is not enough to keep the building open and staffed. There is only one option and that is to go for a referendum to raise the corporate tax rate. This is very hard to do but is the only way a taxing body can survive under tax caps.

If your library is in a tax cap county what can you do? First stay aware of the assessment figures in your area. If there is new growth, be sure to levy enough to capture it. Once lost it is lost forever. Second always ask for the maximum you can and a little more to be sure to capture all the tax money that is due to your institution. Even libraries not under tax caps should be sure that they are levying amounts that will return the full tax rate level. Third, speak to the county clerk and see if they will let you decide how to split the money between the various taxes. Fourth, if you don’t understand what is happening, ask questions of the county clerk or your library attorney.

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