Griffin: How cautious budgeting helps keep taxes higher – Chicago Daily Herald
An improving real estate market means some suburbs are bringing in far more in real estate transfer taxes than they expected.
That’s good for home sellers and towns, and it should be good news for property taxpayers by reducing what they pay for municipal services.
But most of the towns are vastly underbudgeting the real estate transfer tax revenue, which leaves no opportunity for relief on property taxes.
According to a Daily Herald analysis of 19 suburbs that charge a real estate transfer tax, 17 took in a combined $5.6 million more than budgeted during the most recent fiscal year.
The tax usually amounts to about $900 on the sale of a $300,000 house and often is paid by the seller.
Local officials say they’re budgeting conservatively after the housing bust of the Great Recession.
Critics say the towns are holding on to money they should rebate to residents.
“The reason for underbudgeting is so they don’t have to provide property tax relief,” said Jim Tobin, founder of Taxpayers United of America, a Chicago-based group that fights tax-hike measures throughout the country.
In Naperville, the tax was expected to generate $2.9 million last fiscal year. Instead, it generated more than $4.5 million, a 54 percent increase above the budget target.
“That’s a big miss,” said Bill Bergman, director of research for Truth in Accounting, a group pushing for more uniform, understandable and accessible government financial reporting requirements. “But we tend to see underestimated expenses and overestimated revenues.”
This year, Naperville officials budgeted revenues from the real estate tax at more than $3.8 million, but finance officials are already adjusting their expectations.
“We are now projecting it to come in at around $4.2 million, which is still down from last year,” said City Manager Doug Krieger, adding that property tax levies take time to adjust.
“We monitor this, and if revenues are exceeding expenditures, the relief goes to property tax. But once you levy, you’re always stuck with the levy.”
Along with the state and all counties, home-rule communities are allowed to levy a real estate transfer tax. The majority of suburbs charge at a rate of $3 per $1,000 of the purchase price.
Home-rule suburbs used to be able to enact the tax at will, but it became so controversial that in 1997 legislators revoked the power.
Now, home-rule communities have to seek voter approval to levy the tax. And suburbs already levying the tax also have to seek voter approval to increase the tax rate, according to state law.
“It’s just another super taxpayer ripoff,” Tobin said. “The best way to get rid of the abuse is to get rid of home rule.”
That would also eliminate a municipality’s ability to raise property taxes to cover the lost revenue because tax cap laws would be reinstated, he said.
The uncertainty of the tax revenue — particularly since the collapse of the real estate market in 2008 — has made some finance officials overly cautious when it comes to budgeting, many said.
“I think that’s a fair assessment,” Krieger said. “But the health of that revenue stream is tied to two things: the average value of the transaction and the number of transactions. Which, especially in recent years, has made the transfer tax revenue very volatile.”
While many towns simply funnel the tax revenue into the municipality’s general fund, some designate the dollars for capital improvement projects.
“Because we use it to fund streets and sidewalks, if we get a little more money, we fix a little more sidewalks,” said Christina Coyle, Glen Ellyn’s finance director.
Glen Ellyn received $106,703 more than what was budgeted last year, which translates to 19 percent more than anticipated.
Still, Coyle is budgeting transfer tax revenues to come in about $31,000 less than the $656,703 the village received at the end of the last fiscal year.
“What we’ve budgeted is pretty consistent with what we’ve received,” she said. “I wish I had a crystal ball.”
Two suburbs, Addison and Hanover Park, took in less real estate transfer tax revenue than what had been budgeted.
Greg Peters, interim finance director at Hanover Park, said the unknowns of the real estate market make forecasting transfer tax revenues harder than other revenue sources. And it might not be as big a priority to get it right as with other funds.
“Every finance director will do (the forecasting) differently, and some will spend more time on it than others,” he said.
“As a rule, you want to be relatively conservative on revenues and assume the worst on expenditures and you almost always come out good.”
Got a tip?
Contact Jake at firstname.lastname@example.org or (847) 427-4602.
This entry passed through the Full-Text RSS service – if this is your content and you’re reading it on someone else’s site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.