Daily Herald

Is hoarding reserves violating spirit of tax cap law?

Back in 1991, in response to runaway property taxes, DuPage, Kane, Lake, McHenry and Will counties were subjected to a new law that created hurdles to continued growth in tax rates.

The Property Tax Extension Limitation Law, better known as the property tax cap, allowed for modest increases in annual tax levies — tied to the rate of inflation but never to exceed 5 percent. Home-rule communities were exempted from the law.

Cook County adopted it three years later and dozens more counties have adopted it since.

The tax cap was established to allow Illinois’ nearly 7,000 taxing bodies to maintain services by allowing slow spending growth to deal with higher salaries and other costs. The philosophy was that if a large capital project were to be funded — a new library or police or fire station or additions to schools — the taxing bodies would have to get voter approval through referendum to pay for it. We’ve long advocated for most of these projects at election time.

The tax cap has been an important governor of spending, despite Illinois’ ranking at the top of states in property tax burden. It’s hard to imagine how bad things would be without it.

We’ve seen a troubling trend lately of taxing bodies collecting more than they need now and squirreling that money away for large projects.

Our Suburban Tax Watchdog, Jake Griffin, wrote last week that two-thirds of the 93 school districts in the Daily Herald’s coverage area grew their reserves from 2016 to 2017.

Eighty-seven of them were holding more than 25 percent in reserve — including 18 with enough in reserve to cover an entire year’s expenses.

The state board of education recommends a school district hold a minimum of 25 percent of its annual budget in reserve but does not set a recommended maximum.

Glen Ellyn Elementary District 41 officials say they’re building their reserves for pension obligations and life safety projects.

That type of contingency planning makes a lot of sense. Especially in Illinois, where state funding sometimes comes at a grindingly slow pace.

But some school districts amass money for large construction projects, which seems to fly in the face of the tax cap philosophy of asking voters to approve that sort of thing.

There is prudent saving, and then there is excluding public debate.

Proponents argue that by saving up to pay entirely for a big project, or at least defraying the costs of it, they are reducing future tax burdens.

Opponents argue that they’re paying now for something they’ll never benefit from down the line.

Keeping with the spirit of the tax cap law, we recommend that school districts engaging in savings be as transparent as possible about their practices — or put them to a public vote.