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Back-door school subsidies

Little-known state program siphons off millions from education budget for select districts, some of them quite wealthy

By Diane Rado, Chicago Tribune reporter

March 31, 2013

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Oak Park's pricey homes, Frank Lloyd Wright architecture and array of shops and restaurants generate billions in property wealth, funneling a bounty of tax dollars to its elementary school district.

That kind of local affluence usually means fewer dollars from the state to help cover school bills. But Oak Park Elementary School District 97 also receives millions through a little-known state subsidy aimed at fattening its budget.

Oak Park was among those on the receiving end as Illinois quietly doled out some $6 billion since 2000 to boost state aid for select school districts — many in the Chicago region — that couldn't get more money from property owners because of laws that limit tax collections, the Tribune has learned.

Rolled into the usual state aid sent to districts, the subsidies are all but hidden and have been skyrocketing, starting at $46 million and increasing more than 1,000 percent in the years since lawmakers approved them, state data show. At its peak in 2008, the program cost taxpayers $805 million, with the majority of school districts not getting a penny.

"It is ridiculous," said State Superintendent Christopher Koch. "We can't afford it; it doesn't make sense, and it's not fair to everyone else."

Koch and other critics say the subsidies drain the main pot of state aid that is supposed to be distributed equitably across Illinois.

That state-aid money, more than $4 billion annually in the last several years, has been shrinking amid the state's fiscal crisis. And the subsidies have prompted renewed attention from lawmakers grappling with more potential cuts in education aid.

This school year, the subsidies add up to $502 million for 292 districts, about a third of the state's districts, according to data provided by the Illinois State Board of Education.

The payments often are referred to as "adjustments" to a district's state aid.

To be eligible, school districts have to operate under the state's tax cap laws designed to help control local property tax increases. Of the state's 862 districts, 460 fall under the laws. But not all of them get the subsidies — it all depends on the rise and fall of local property values and a complex state formula that essentially pretends a district is less wealthy than it really is.

That's important because property wealth is key to determining how much state aid districts get. Typically, the less local wealth, the more state dollars per student a district receives.

Chicago Public Schools — the state's most property-rich district, even though most of its students are low-income — gets the biggest subsidy this year, about $283.5 million. To make that happen, the state shaved $36 billion from CPS' property wealth, records show.

Without the adjustment, basic state aid for CPS would have been about $130 million instead of $413.3 million.

Cook County districts as a whole get most of the subsidy money, including districts in more affluent communities such as Wilmette, Evanston, Glenview, Schaumburg and Park Ridge.

Many less financially well-off districts in Cook's south and west suburbs also benefit.

Districts in Will, Kane, Lake, McHenry, Kankakee and DuPage counties get the next highest amounts, according to data examined by the Tribune.

'Relief for the wealthiest'

Local school officials say the subsidies have been a lifeline as districts coped with budget challenges during a tough economy.

Oak Park 97 got the fifth-highest subsidy in the state this year — calculated at $7 million.

"That $7 million is a huge percentage of our budget," said Robert Spatz, vice president of the school board, which oversees a budget of nearly $70 million. "Seven million is 100 staff members."

Without the subsidy, Oak Park's basic state aid would have been $1.8 million instead of nearly $9 million.

CPS officials, facing a $1 billion deficit next year, defend the subsidies as a way to help districts that lose out on local revenues because of tax caps, as well as potential state aid because of the way Illinois distributes tax dollars to schools.

But Tom Johnson, president emeritus of the Taxpayers' Federation of Illinois, calls the subsidy program "property tax relief for the wealthiest districts," specifically "those districts that have grown in wealth dramatically."

The subsidies, he said, depart from the original purpose of state aid — to help equalize school spending, whether a district is property rich or poor.

Johnson served as chairman of the Taxpayer Action Board created in 2009 by Gov. Pat Quinn to examine spending and fiscal reforms. The group encouraged a broad school funding review as well as capping — but not eliminating — the subsidies, given the political challenges.

"Any piecemeal change ... would create immediate winners and losers and impede a proper resolution," the group's report stated.

CPS would lose the most if the subsidies were eliminated, so resistance from Chicago lawmakers would be expected.

And now that school districts are dependent on the subsidies, it would be hard for the General Assembly to take them away, said Jeff Mays, a former state lawmaker and president of the nonprofit Illinois Business Roundtable.

Mays is a board member for Quincy Public School District 172 in western Adams County, which isn't under tax caps and doesn't get subsidies.

"That takes money away from us,'' Mays said.

Shrinking resources

The subsidy formula dates to legislation in the late 1990s, said Rob Grossi, treasurer of the Bloom Township Trustees of Schools, who worked on the original formula.

At the time, districts were realizing the impact of the new tax cap law, called the Property Tax Extension Limitation Law, or PTELL.

The tax-cap law emerged in the early to mid-1990s as property tax bills were skyrocketing and taxpayers were growing fed up. PTELL generally limits increases in overall taxes billed annually to 5 percent, or the rate of inflation, whichever is less. Voters can approve larger increases.

Chicago's collar counties were the first to be subjected to the caps, followed by Cook County. Elsewhere, county voters could decide whether to use tax caps.

Districts facing loss of local dollars discovered that tax cap restrictions could affect their ability to get state aid as well, Grossi said, because of the way a district's property wealth was factored into the state aid formula. More wealth usually means less state aid, so the wealth figure in the formula is pivotal.

The solution was to change the PTELL law and create a different formula for tax-capped districts, Grossi said. That involved using an alternate figure for a district's property wealth that would grow generally at the rate of inflation — even if the district's real wealth grew faster.

The state uses the lower of the two wealth figures, to allow a district to get as much state aid as possible.

The extra aid, or subsidies, that districts received as a result became known as "PTELL adjustments."

Some tax-capped districts don't get the subsidies for a variety of reasons. Their real property values may go down, and the regular funding formula would kick in, without any subsidies.

Over the years, the gap between the real and alternate wealth figures widened significantly in some districts.

For example, CPS started out in 1999-2000 with a real wealth figure of about $33.4 billion. Its alternate wealth figure, used to determine state aid, was $31.9 billion.

For state aid this school year, the real wealth figure is $88.1 billion. But the alternate figure is just $51.9 billion, boosting CPS state aid substantially.

At this juncture, the alternate wealth figure has become "an abstraction. It doesn't have any bearing on reality," said Jason Hall, a senior policy adviser at the Illinois State Board of Education.

"We are in a world of shrinking resources," he said. "And the question becomes, is this the best methodology for distributing funds, and are we benefiting the most needy districts the best we can?"

Critics and confusion

A variety of groups have been critical of the subsidies and have pushed for change.

At the very least, the state should be more transparent about the subsidies, said Ted Dabrowski of the Illinois Policy Institute. The fiscally conservative think tank has called for an end to the payments, saying they force taxpayers to subsidize tax-capped districts that refuse to rein in spending.

Dabrowski and others say the formula used to determine the subsidies is so convoluted that most people, even in school districts, can't explain how it works.

"I don't know how they come up with the formula. ... It is not anything we come up with," said Ric King, assistant superintendent over business services for the sprawling Schaumburg-based School District 54. The district got a $1.75 million subsidy rolled into its state aid this year because the state used $4.5 billion as the district's property wealth. The real figure is about $5.8 billion, according to state data.

In Will County's Lincoln-Way Community High School District 210, Assistant Superintendent for Business Ronald Sawin said his district has seen massive retail and residential growth over the years. But in calculating its state aid, that wealth was downplayed by the formula, which gave the district an extra $4.4 million in aid this year.

State education officials broke out the subsidies embedded in state aid for the Tribune, revealing payments of less than $5,000 in 15 districts to more than $1 million in 54 districts.

The 10 districts getting the most money — all with subsidies higher than $5 million — are mostly in west Cook, and two are in Kane County: Aurora West and East districts.

West Aurora School District 129 spokesman Mike Chapin said it would be difficult for the district to do without its subsidy — almost $6 million in extra state aid this year.

"There are revenue streams that we don't get because we're not wealthy enough and we're not poor enough, so it is a real struggle," Chapin said.

drado@tribune.com