Illinois Schools Use Hidden Tax to Evade Property Tax Caps

Published July 1, 2005

Hundreds of school districts across Illinois have sharply increased a special tax that is meant to pay for legal claims and insurance expenses, some of them apparently doing so to divert the money to other purposes.

In some school districts, the amounts collected for the obscure “tort immunity fund” tax have skyrocketed several hundred percent over the past five years, with much of the money going to fund the salaries of teachers, administrators, and other personnel. Most local taxpayers do not know about the increases, because the tax does not show up on property tax bills.

The improprieties were revealed in a special report released in April by The Illinois Business RoundTable (IBRT), a voluntary association of chief executive officers of the state’s leading businesses.

Districts ‘Gaming the System’

“This is a litmus issue for taxpayers and the schools they support. Either districts are keeping the faith with their taxpayers–and the vast majority of school districts are–or they’re gaming the system,” said Jeff Mays, IBRT president.

According to the IBRT, 836 school districts reported data for 2002 and 2003. Tort tax extensions, the total amount billed to property owners, were as follows:

  • 50 school districts increased their extensions more than 100 percent;
  • 52 school districts increased their extensions between 50 and 100 percent;
  • 90 school districts increased their extensions between 20 and 49 percent;
  • 126 school districts increased their extensions between 10 and 19 percent;
  • 208 school districts increased their extensions between 1 and 9 percent;
  • 241 school districts had either negligible increases or decreases in their extensions.

More than 50 school districts that submitted data were left out of the analysis because certain information for 2002 or 2003 was unavailable.

Some Increases Astronomical

Some school districts had astronomical increases in their tort immunity tax extensions from 2002 to 2003.

The IBRT analysis showed Waltham School District 185 in LaSalle County had a nearly 899 percent increase, from $10,015 in 2002 to $100,021 in 2003. Grayslake Community High School District 127 in Lake County increased its extension 705 percent, from $62,781 to $505,417. Niles Township Community High School District 219 in Cook County hiked its extension 595 percent, from $222,134 to $1,545,000.

Of the 836 districts, 158 received more than 10 percent of their total property tax levy from the tort immunity tax, according to the study.

Lawsuits Pending

According to the IBRT report, “it has become apparent that some units of local government are using the tax revenue to fund expenses more properly paid for from general operating funds. These uses of the revenue are inconsistent with the limited purpose of the tax authorization.”

State law allows school districts to “levy an annual tax upon the value of the taxable property within its territory as equalized or assessed by the Department of Revenue at a rate that will produce a sum sufficient to pay the cost of settlements or judgments,” as well as the costs of liability and property insurance premiums and risk management programs.

Unlike other local school taxes, whose maximum rates are limited, there is no limit on the tax rate for the tort immunity levy.

At least four Illinois public school districts and a community college are being sued over their use of the tort tax. Plaintiffs allege much of the money has been illegally diverted from its stated purpose.

‘Outright Abuse’ Charged

“I am asking the court to rule that you can’t use a tort fund levy to pay for salaries in the manner that the school districts are presently doing it,” said Freeport attorney Robert Slattery, who represents plaintiffs in the five cases. “It is illegal in Illinois to levy a tax for one purpose and then to divert those funds and spend them for another purpose. That is what the taxing districts are doing.”

Slattery said that in the past three years, Illinois schools have collected more than $1 billion in tort fund levies. “According to my estimates, from $600 million to $700 million dollars or more of these levies are illegal, and the funds are being illegally diverted to pay for salaries,” Slattery said.

Slattery’s crusade against misuse of the tort tax goes back to at least 2001, when he sued Highland Community College in Freeport. Slattery has also filed lawsuits against the Coal City, Freeport, Pearl City, and Quincy school districts.

None of the cases has been decided, but Slattery expects a ruling in one of the cases by the end of June.

Money Shifted to General Fund

In an April 20 article, Chicago Tribune reporter Diane Rado found 2003-2004 financial reports of Chicago-area school districts showed “nearly every district moved the tort money into its main education operating account for teacher and administrator salaries, pumping up reserves and, in some cases, avoiding deficits.”

Coal City school superintendent Kent Bugg told Rado the district “surveyed teachers to determine how much time they spent on supervisory duties that keep children safe, such as monitoring halls during five-minute passing periods between classes.” He also said the district worked “closely with its attorneys to ensure the expenditures were appropriate.”

Districts Vulnerable to Judgments

The IBRT’s Mays fears that with tort money paying for salaries, school districts won’t have enough left over if they have to pay a legal judgment.

“What happens when you have a legal decision rendered against a district, if that district is already spending significant dollars from this tax for operating salaries?” asked Mays. “In that district, if 12 percent of the teachers’ salaries are coming from this tort fund, will the district reduce salaries by 12 percent to pay the claim, or lay off 12 percent of the teachers?

“Clearly, neither choice is appropriate. That’s why the law enabling districts to apply an ‘extraordinary’ tax for claims and settlements was created in the first place,” Mays said.

John W. Skorburg ([email protected]) is a visiting lecturer in economics at the University of Illinois, Chicago and associate editor of Budget & Tax News.

For more information …

The Illinois Business RoundTable’s “Tort Fund Review” can be found online at