Identifying and Mitigating Sources of School Revenue Erosion

Preserving existing revenues is an essential component of the work of school business officials. The broad ranges of activities that can affect school district revenues make identifying potential threats difficult. By understanding the issues that affect school district revenue, school business officials are better able to diminish its erosion — a critical task in today’s unsteady economic environment.         

Tax Increment Financing (TIF) Districts
The basic premise of a Tax Increment Financing (TIF) district is that revenue generated from the growth in property values is dedicated exclusively to financing the infrastructure necessary to encourage economic development in blighted or depressed areas. With regard to TIF districts, school business officials can do the following.

Take advantage of every opportunity to be involved in formulating and monitoring a TIF district.
  • Review documents and attend meetings.
  • Negotiate with the municipality to protect the school district’s interests. Issues that may be subject to negotiation include geographic area of the TIF; scope and nature of eligible expenditures; revenue, technology and resource sharing; requirement that property owners waive any right to property tax appeals; contiguity to school district property and financial assistance to the school district for students residing within the TIF district.
  • Monitor the activities of the TIF district and attend meetings. Track the number and value of TIF districts in the school district. Determine if the property within the TIF district will have a special identity for property tax purposes after the TIF district terminates.

Property Tax Litigation

The property tax is one of the least popular taxes in the country. Consequently, taxpayers often litigate in an attempt to reduce their tax bills or to obtain tax refunds. School business officials can take action in several arenas.
  • Review all notices the school district receives concerning property tax appeals. If the school district can become involved in the litigation, determine the threshold at which intervening becomes cost effective for the district.
  • Identify high-value properties in the school district and monitor court records to see if the owners of those properties are filing assessment appeals.
  • If a high-value property is undervalued by assessing officials, consider filing litigation asking for the assessment to be increased. This can be used to obtain the dismissal of other assessment appeals filed on the same property in prior and future years.
  • Educate yourself about the status of the law in your jurisdiction regarding the requirements for levying a property tax and for managing the finances of the school district.

Property Tax Abatements
Property tax abatements are arrangements whereby the school district agrees to forego property tax revenues on a specific property. Abatements often are conditioned on the development of the property with a specified improvement. Here are some guidelines.
  • Memorialize the abatement with a written agreement.
  • When developing the agreement, meet with your local tax extension office to ensure the abatement will be implemented consistent with your expectations.
  • Require the completion of the development prior to the commencement of the abatement.
  • Guarantee only that the school district will authorize the abatement, not that the abatement will be implemented by other public officials responsible for administering the property tax system.
  • Set the value of the abatement as a percentage of the taxes collected rather than as a specific dollar amount to avoid the abatement amount exceeding the collected amount.
  • Include claw-back provisions that allow the school district to obtain compensation in the event the development fails.
  • Include a provision that the benefits of the abatement are not transferrable in the event of a sale or lease of the property.
  • Monitor the abatement carefully. Ensure that all the proper paperwork is filed with the local taxing officials in a timely fashion. Periodically review the property tax bills of the property to see if the abatement is being provided as anticipated. Inspect the property to see if the terms of the abatement agreement are being observed.

Remain Vigilant
Even if you have dealt with each of these sources of revenue erosion before, you must remain vigilant. Become involved in the process and use these recommended actions as a starting point to become fully engaged in the process.

Michael Prombo is director of operations for Community Unit School District No. 300, Carpentersville, Ill. He can be reached at [email protected]

Ares G. Dalianis and Scott R. Metcalf are with Franczek Radelet PC, Chicago, Ill.

This article is excerpted from the original, which appeared in the Sept. 2009 issue of School Business Affairs, published by the Association of School Business Officials International (ASBO).