Leadership Matters March 2014

City sales tax for schools might be option worth exploring In a previous issue of means for alternate views to be presented and discussed.

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

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

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

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