Limiting tax increases with caps and creativity

Opinion: Columns

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By Ali ElSaffar

Oak Park Township Assessor

Most Oak Park property owners have seen tax increases of 20% over the last two years. For the average single-family homeowner, this corresponds to an increase of $1,875. At a time when inflation has been less than 2%, these double-digit tax increases have given rise to great community concern.

Under Illinois' tax cap law, tax increases by local governments are not supposed to exceed the rate of inflation. But Oak Park governments have raised additional revenue over the years through voter-approved tax referendums and various other exceptions and loopholes in the tax cap law. The cumulative result of these efforts is that local tax levies have increased by more than three times the rate of inflation since the year 2000. For a community that aspires to be open to people of diverse backgrounds and income levels, this is not a sustainable path. 

Large tax increases are especially problematic under a property tax system that makes few distinctions between those who can afford higher taxes and those who cannot. Some Oak Park residents have seen 20% tax increases even if they have retired, lost a job, or gotten sick over the last two years; many more have seen large tax increases without equivalent increases in their incomes. If we made greater efforts to limit tax increases to the rate of inflation, we could reduce the harm caused by these regressive elements of the property tax system. 

Conventional wisdom in Oak Park, however, suggests that top-notch public services require periodic tax increases that are well above inflation. This point of view has led Oak Park's largest local governments to increase their tax levies by more than 20% over the last two years. 

But the financial record of Oak Park's smallest government raises doubts about the conventional wisdom. Oak Park Township provides high-quality public services, yet its tax increases were just 2.4% in the last two years, and have been significantly lower than any other Oak Park government to this point in the 21st century (See chart). In addition, the township has no debt, and its pensions are 93% funded, the highest of any local government in Oak Park.

Notwithstanding the township's positive financial record, some have suggested that local taxes could be reduced by consolidating the township with the village. But there are reasons to doubt this. Research indicates that when governments with two pay scales consolidate, salaries at the lower-paying government (the township) tend to rise to the level of the higher-paying government (the village). This is one of several reasons that I am skeptical that consolidation would result in any meaningful savings for taxpayers. 

Rather than trying to eliminate the township, we should instead seek to emulate it, as the township's financial record points to a sustainable path for community taxes. The township has not pursued a tax referendum in four decades, which has forced it to operate under the restrictions of the tax cap law. This has sometimes been difficult, as government expenses can increase by more than inflation. But the township has overcome the difficulties, using the tax cap's exception for newly-built properties to raise some extra revenue, while containing costs with creative, cost-effective policies. 

Employee compensation is the largest expense at the township and most other local governments. Prompted by the tax cap, the township has adopted an overall limit on salary increases that closely tracks the rate of inflation. My salary of $34,217 falls under this policy. Last year the pay for my part-time job rose by $238, matching the applicable rate of inflation. Although I could probably earn more working elsewhere, I and many of my colleagues have chosen to work at the township because its culture of public service provides rewards that aren't reflected in our paychecks. 

The limitations of the tax cap have also encouraged the township to collaborate with other local governments. For example, the shared missions of Oak Park and River Forest townships have led them to join forces to provide high-quality services for at-risk youth and senior citizens. By working together, both townships have achieved money-saving economies of scale. 

Finally, with ever-increasing taxes, the Township Assessor's Office has seen significant increases in requests for help with tax appeals. Instead of hiring more salaried staffers to do the extra work, however, we have found well-qualified people willing to work on a temporary, part-time basis during appeal seasons. Since such employees only work as needed, this is an efficient way of providing services. 

Oak Park is a big-hearted town that uses local government to promote a vision of a better community and a better world. The challenge is to find a way to achieve this vision without raising taxes by so much that Oak Park becomes prohibitively expensive for large segments of the population. But if we embrace the tax cap as a catalyst for finding new, cost-effective ways of providing services, I believe we can meet this challenge.

 

Oak Park Town by wednesdayjournal on Scribd

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John Kehoe from Oak Park  

Posted: June 18th, 2018 6:20 PM

Gotta love Ali Elsafar. If our other taxing bodies would take a lesson from the Township, maybe it wouldn't be necessary for so many to flee Oak Park. Do not contaminate the Township office with your over-taxing, over-spending ways. Yes, I'm speaking to Dist. 97, 200 & the VofOP!

Kevin Peppard from Oak Park  

Posted: June 15th, 2018 3:40 PM

Bruce K.: Teachers, being in the stagnant portion of the economy (re productivity), are nonetheless vital, and must have their compensation grow with other professionals, if we are to keep them in the labor force. Consider the "progressive" sector of the economy: Henry Ford could give large wage increases, while reducing the price of his Model T, because he made his workers very productive. It is that "progressive" sector that pays for the Cost Disease, and for "Mission Creep". But there have to be productivity increases in the economy, and they have to be shared with workers, not just retained by business owners. Look at the Employment Cost Index for Total Compensation across many occupations, and you'll see that people's standard of living is not increasing very fast. OPRFHS is way out of whack, but then it has that huge cash balance, which allows it to be very sloppy. I should have pointed out that from that eight year period, FY2010 to FY2017, with seven years' of growth, Operational Cost per Pupil grew more than 23% over the Consumer Price Index. The Feds predicted that Cost per Student, deflated by the CPI, would have remained flat over that period, because teachers, across all 14,000 public school districts measured, are NOT growing in CPI-adjusted compensation at this point. Worker growth in real compensation across the economy is low, and schools are not adding to their missions at the old rates. There is no point in the High School forming a new permanent commission on this until someone with knowledge defines the issues. To solicit people's resumes will not accomplish that. We will again having the blind leading the blind. If there are people who understand the economics of this, why haven' they written the papers or the school? The last Financial Advisory Committee was a farce, and could not agree on fundamentals, but that was papered over.

Bruce Kline  

Posted: June 14th, 2018 6:17 PM

Kevin: But if I understood Baumol correctly (which I doubt) he implies that labor costs must rise substantially as other costs come down i.e like TVs and computers and iphones. That means teacher salaries and benefits (as well as administrator salary and benies) must continue to climb??

Kevin Peppard from Oak Park  

Posted: June 14th, 2018 4:37 PM

Bruce K: What if forgot to add is that the Operating Expense per Pupil (OEPP, reported by the State Board) at OPRFHS was $23,966. And that figure is a year out of date.

Kevin Peppard from Oak Park  

Posted: June 14th, 2018 4:34 PM

Bruce K; The fact that government costs will often grow beyond the CPI doesn't mean they can't be controlled. OPRF under Supt. Don Offermann and his subordinate Frank Danes used to be very open-minded, as was later Board President John Phelan. Then the institution became a "circle-the-wagons', "not-invented-here"syndrome place. I know more about school finance than anyone there, if only because I have painfully learned it over the years. There is a wealth of economic insight into what drives school costs, and plenty of data from the Feds and State. Here is something that should astound you: The Operating Expense per Pupil (OEPP, reported by the State) at OPRFHS rose at a compound average annual growth rate of 4.7% per year over the seven years of growth from FY 2000 to FY 2017. Over that same period, the Consumer Price Index (adjusted to fiscal years ending on June 30) rose at an average annual compounded growth rate of 1.7%. What accounts for rising 3 points above the CPI, year in and year out?. Overspending. The Feds report nationally on past cost per student, deflated by the CPI, and project it into the future. Over that same period, the actual and the projected data essentially predicted that deflated costs would remain the same, and not rise by 3 points a year (see Projection of Ed Stats to 2026 by NCES). The school doesn't even know these stats exist. How much does the US Dept of Labor say people's compensation increased over that period, after deflating by the CPI? 4/10ths of a percent per year for all workers, and 1/10th of a percent per year for professionals. Boom times are gone. Although OPRF has limited salary increases at times to freezes or some index tied to the CPI, they have forgotten to control health care benefits, which they have allowed to explode. If General George Patton were still alive, and he walked into an OPRF Finance Committee meeting, he'd start slapping faces.

Bruce Kline  

Posted: June 13th, 2018 11:26 PM

As usual a thought provoking comment from Mr. Peppard. And yes I had to google William Baumol. And yes, he seem to be a giant in regard to labor theory and cost. So Kevin, please explain the bottom line. How does all this play out in regard to our rapid rise in property taxes? Given Baumol's insights, can anything be done, right here is Oak Park? Or is all action futile?

Kevin Peppard from Oak Park  

Posted: June 13th, 2018 7:55 PM

El Saffar, when he speaks of a 20% increase in property taxes over two years, is glossing over the very thing he has in a foot note: OPRFHS, when it "bounced back" from its ONE-TIME decrease in taxes, accounted for more than 1/3 of that. The most important thing he neglects in this analysis is that government costs naturally rise faster than than Consumer Price Index, and we pay for that out of what economist William Baumol called the "progressive sector" (such as microelectronics, the Internet, manufacturing, etc.) which can offer huge productivity gains. There are also mission enhancements we we keep demanding from government, which add to costs. Are we going to get rid of Title IX Girls Sports, or Special Ed, or better building security at schools? That doesn't mean we don't have all kinds of waste in local government. Until we understand the ECONOMIC underpinnings of local government finance, there is no point in the High School forming yet another financial advisory committee. The most respected local public official we have re finances, Ali El Saffar, does not understand that Tax Caps routinely have to be exceeded, as part of basic labor economics. His own taxing body has grown faster than the CPI -- look at his table. The CPI (Consumer Price Index) is not a good measure of government cost growth, and there is no such thing as generic, monolithic "inflation". The ECI (Employment Cost Index, using total compensation) is a much better measure, since local governments tend to labor-intensive, with few means of improving productivity compared to the private sector. The number of people who understand public finance in this town can be counted on the fingers of one hand, and that is from someone who held a hand grenade too long.If the High School is to form a meaningful finance committee after the unceremonious departure of its current business officer, it should not seek resumes from people who need on-the-job training. It needs someone with a governing context.

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