LM summer 2023

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How stable of a funding source has CPPRT been for schools? If you track CPPRT over time, it generally trends upward in the long term. However, it does kind of cycle every six to seven years with the Illinois economy since most of the CPPRT is based on corporate profits. In FY 22 and FY 23, schools saw a 3X amount of CPPRT increase. For example, if you received $1 million on average, the last couple years you received $3 million. Why was there such a jump in CPPRT funding the past two years? When we talked to the Illinois Department of Revenue about why the CPPRT increased so much the last couple years, we were told that there were changes in tax laws due to closing some loopholes and then what happened with the economy during COVID. While small businesses struggled, the big corporations in Illinois made a lot of money. But that’s not exactly what happened. Can you tell me a little bit about reallocation? About a month ago, we received a memo from the Department of Revenue on reallocation. Reallocation is when corporations submit their income tax estimates, and some individuals have to submit income tax estimates, it all goes into one account. The Department of Revenue makes a determination on what percent of income tax dollars should be allocated to corporations and what percent should be allocated to the individual income tax accounts at the state. They do a pretty good job of making this estimate. However, with the tax law changes, they weren’t exactly sure how the allocations should take place. The memo we received said that too much CPPRT was allocated to the corporation side and not enough was allocated to the income tax side in the initial estimates. People submit income tax forms by April 15th. Once all those are all collected, and refunds are paid, the Illinois Department of Revenue does what they call a

What does that mean for school districts? Superintendents and business managers just want to know how much money they are going to receive. They’ll then figure out how to move forward. Right now, the challenge for superintendents and business managers is kind of guessing on the amount you’re going to receive. The Department of Revenue has not said that they’re going to request school districts or governmental entities to send back the money. Instead, they’re going to take that $800 million dollars out of the FY 24 bucket. In addition, they say when they make the correction on allocation, it could be to the tune of another $800 million. Therefore, if you take $800 million out of FY 24 to make up for the miss allocation in FY 21 and FY 22, and then make the correct allocation, which could end up being $800 million (not sure yet), simple math says there could be $1.6 billion less in CPPRT in FY 24 than FY 23. True Up, where they figure out exactly what went into corporate budget lines and what went into revenue lines. That process lags about 18 months. What they determined was that in FY 21, or FY 22, they were off on their allocation to the tune of about $800 million. Now they need to move that $800 million dollars from the corporate income tax lines back into the personal income tax receipt lines and then correct the allocation going forward.

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Can you put the impact of this overallocation in context?

The total CPPRT bucket was about $4.5 billion dollars. If you take $1.6 billion out of $4.5 billion, that’s about one-third less. The bottom line is schools will receive about one-third less in CPPRT in FY 24 as they did in FY 23, if everything else holds the same.

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5 LM Summer 2023