The promise of a new public-school funding formula for Illinois was that no districts would lose money. So many said they were blindsided when the state announced a big cut in another revenue source tapped by schools. For some, it’s a significant part of their budget. This week’s Friday Forum looks at what’s going on.
Money from the state Corporate Personal Property Replacement Tax, or CPPRT, fund is allocated each year to most taxing bodies in Illinois, from rural fire districts, townships and schools to cities and counties. In late August, the Illinois Department of Revenue announced that estimated allocations from the fund would be down nearly 24 percent from last year. For some, including some school districts, that’s a problem.
Bradley Cox is superintendent of Erie School District 1 in Whiteside County. It has about 660 students, from pre-K through grade 12. He said the taxing bodies in his area, including the district, have an unusually large revenue stream coming into their budgets from the replacement tax compared to the average across the state. For instance, he said, the allotment for an average school might amount to a few percent of its budget. In Erie Schools it’s a third of the revenue the district relies on to function.
So how that translate for this year’s cut? Cox gave the numbers.
“Typically we get 3.5 and 4 million dollars total in replacement tax,” he said, “and with this last hit that we took, we lost a little over 900 thousand dollars.”
That’s a considerable amount to make up, but Cox said the district does have reserves it can draw on to cover the larger-than-expected difference from what was budgeted. It’s something most districts have to do, he said, because they know funds like the CPPRT go up and down. He just hopes he won’t have to make such a big drawdown again.
So what’s going on with the CPPRT? And where did it come from, anyway?
State Rep. Bob Pritchard, R-Hinckley, explained that the fund was set up in 1979 to replace a patchwork of local taxes on business property across Illinois. The amount each taxing body got was based on the manufacturing activity in their particular area at the time, and was supposed to make up – that’s the replacement part of CPPRT – what they gave up when the state took over collection under a new system.
Differences in manufacturing activity from area to area in 1979, as well as size and population, explain why some on average get a bigger allotment than others.
That still leaves the question: why the big reduction in the payments this year?
Pritchard said a number of factors piled on top of each other. For one thing, corporations in the state made less money, and thus are paying hundreds of millions of dollars less in taxes.
“Therefore, the amount of money to go into this fund is going to be less," he said. "And then there was an error that the Department of Revenue was making several years ago. They were taking their corporate income tax and putting some of that into the Corporate Personal Property Tax fund. So the fund is larger than it should have been.”
Now the Department of Revenue is clawing that misapplied money back to where it belongs.
Finally, the legislature skimmed $100 million from the fund in the new budget to help pay for things like MAP grants, regional boards of education, and community colleges. All that led to the announced 24 percent reduction in estimated payments.
The Erie School District is not alone. There are about 30 districts where the replacement tax money accounts for a significant percentage of their budgets – more than 15 percent -- and, for a few, close to 40 percent. The dollar amounts, and percentage of a particular district’s budget, can vary widely.
Mike Matteson is superintendent of the Rutland Grade School District 230 outside Ottawa. Rutland’s 75 students share him as superintendent with another district nearby -- Wallace Grade School District 195 -- which has about 385 students.
Matteson said that, even though the two rural districts are not that far apart – he described them as wrapping around the city of Ottawa and reaching toward Marseilles -- the impact of the CPPRT on them is very different.
He said Rutland encompasses historically industrial riverfront property, and the money from the CPPRT allotment amounted to nearly 19 percent of its budget last year. At Wallace, which he said was more residential in nature with a little retail, the CPPRT payment accounted for only 1.6 percent of its budget. So the cut for Rutland, if smaller than for some districts in dollar terms, was very real, and given the small size of the district, could have a tangible impact.
“It’s about 4.4 percent of our budget that we lost,” he said. “$60,000 is, you know, a teacher’s salary.”
But even though it hurts, Matteson said his district is doing better than others hit by the cut. Like Cox, he said using reserves will help in the short term. He’ll also look for places to save money but, with the school year already underway, that’s tricky -- and for others, even more so.
Carl Carlson leads the Putnam County School District 535, which encompasses Illinois’s smallest county and has about 950 students, K-12. He said the CPPRT amounts to anywhere from 24 to 27 percent of his district’s budget. So the cut did hurt – and could potentially have an impact on its most important employees. Carlson referred to the budget he presented recently to the school board.
“If you were to look at our education line item,” he said, “our personnel or ed fund is pretty much where we’ve been putting most of that, to go toward teacher salaries; we’re about $700,000 short.”
Like the others, he said he has some reserves to draw on, but he’s wary of the future. He said the most affected districts, like his, are not standing pat. He said the superintendent of Monticello School District 25 in Piatt County, which sits near the top of the list of most affected schools, is coordinating their efforts
“We’ve been mailing – emailing -- and sending letters of support to representatives in all of our areas across the state,” he said, “to try to see what can be done to offset this dramatic reduction.”
Carlson said there’s been talk of getting a legislative committee to at least look into the issue but, for now, all they can do is keep asking for help.
Another source of worry for the affected schools is that – with the revenue from CPPRT included – most are considered relatively well-funded. That means, under the new school funding formula, many, like Carlson’s, already have at or above what is considered “adequate” levels of support.
Carlson said that could mean that, at best, his district could a small bump up in state support – but maybe not enough to overcome the large cut in the replacement tax allotment.
The superintendents also said the much-bigger-than-expected cut in the CPPRT payments meant many districts had to hastily rethink their budgets. That didn’t make anyone happy.
Pritchard is sympathetic, but he said the school officials themselves acknowledge the erratic nature of the CPPRT allotments – as well as the state budget process -- and should always plan accordingly. He said they were actually overpaid the last couple of years because of the state’s error.
But, in any case, Pritchard said, despite their apprehension, the districts will get help when the new school funding formula kicks in. That’s because it will be based on their finances in a given year.
“So, in this particular case,” Pritchard said, “what we’re saying is, their local resources are being reduced [by the cut in the CPPRT payments]. That works itself through the formula. So that school district is going to get a little bit more in the next year, because they have less local resources [this year].”
Of course, the affected districts are on the hook in the near term. But in time, he said, it will all even out, and districts should now have more certainty from year to year when crafting a budget.
Looking to next year, Pritchard saw reasons to be optimistic about the fund. For one, the revenue distribution mistake has now been accounted for.
“They won’t have the bump from reclaiming money from the Department of Revenue,” he said. “[And] they may find that corporations are going to make more money because there’s more certainty [with the passage of a state budget]. And I’m hearing that a lot of businesses are doing well this year, so that [tax revenues] may go up next year.”
Plus, he said, the legislature may not skim off anything from the fund next time -- or at least much less than they did this year. So districts could face having more money than anticipated.
And who knows, he said, the legislature just might take care the budget, as well as what to do with the CPPRT, when it’s supposed to – before the start of the next fiscal year.
He and the superintendents would agree that, if that happened, everyone would be again be shocked – but, this time, in a good way.