14
City sales tax for schools might be option worth exploring
In a previous issue of
Leadership Matters
, I discussed
the County Occupational Sales
Tax, which has passed in
several counties during the last
decade. This allows for districts
to obtain up to $.01 of sales tax
funds collected from within a
county to help defray costs for
capital
renovation
or
construction.
While
many
Illinois
superintendents are aware of
this possibility, the alternative
sales tax possibility occurring
within a city’s limits are much less well known. It is
this occurrence that I will discuss in this article.
Facing financial challenges, several cities in
Illinois have turned to city officials, who raised the
local sales tax rate within the boundaries of a city to
generate funds in order to help the school districts
with the construction of capital facilities. Their
experience provides useful lessons for other
jurisdictions under similar circumstances.
In Illinois, home rule cities can raise the local
sales tax in quarter percent increments -- without
obtaining voter approval. Non-home rule cities must
obtain voter approval to raise the sales tax. They are
also constrained to a maximum rate of 1 percent, and
must use the funds for public infrastructure or
property tax relief. The non-home rule sales tax
statute did not originally include public schools as
public infrastructure, however the statute has been
revised to include public schools and at least two
communities have requested the change. The local
sales tax is imposed on top of the state sales tax,
which is currently 6.25 percent on most items.
When approached for help, a city may be able to
offer financially challenged school districts some type
of assistance in the short-run, or help with the
financing of a particular project, such as the
construction of a new school facility. If the public
believes that the school district has legitimate needs,
then raising the sales tax rate to support those needs
can be more politically feasible than having the
school district raise the property tax. The sales tax is
less visible, is not paid in a lump sum, and part of the
burden is typically born by non-residents.
The city and the school district need to educate
the public and determine whether the public supports
the use of the city sales tax to help the school district.
Even if a city is not required to obtain voter approval,
it is still prudent to hold public hearings and provide a
means for alternate views to be presented and
discussed.
If it does decide to raise the sales tax rate in
order to help the school district, the city will need to
prepare a resolution authorizing the increase. It is
also helpful to develop a written intergovernmental
agreement describing the structure and nature of the
agreement. The participating entities need to
address the terms of the agreement, such as how
much funding that the sales tax will generate, length
of time the agreement is in force, and if there are any
restrictions on how the funds may be utilized by the
school district.
In studying this issue, the author has received
input from several superintendents who have
successfully utilized a city sales tax, including Dr.
Gary Kelly from Du Quoin, and Mike Williams of
Maroa-Forsyth. Some of the salient answers from
them concerning this issue include the following:
Was there a “sunset date” for this tax?
In the
case of both Maroa and DuQuoin, the tax was
predetermined for a 20-year period.
Were there political issue or problems
encountered?
The Village of Forsyth at the time was
not home rule and therefore did not qualify for a city
sales tax, so both school districts sought special
legislation to enable the city to utilize a city sales tax.
For both districts the County Occupational Sales Tax
was not an option when their city sales tax was being
discussed.
If you had to replicate this process in another
district, what suggestions would you have for
colleagues considering this tax?
Kelly indicated
that knowing and understanding the desires of your
community and obtaining an “optimal relationship”
with city government officials was crucial. Williams
stated that it necessary to “gain support from the
district, community, and the businesses…”
In terms of how much tax funds are generated
annually, Du Quoin generates approximately
$400,000 and Maroa around $1 million. As you can
see, these funds can serve as the financing
necessary to support the construction of capital
facilities for a school district.
While this financial option has been utilized by
relatively few school districts in Illinois, it does
present school districts with an alternative to the
costs for the construction of capital facilities at a time
of lack of funding from the Capital Development
Board and the State of Illinois. School districts need
to discuss with city government officials and
constituents of their districts whether a city sales tax
for schools provides a viable option.
Dr. William
Phillips
IASA Field
Services Director
