Agenda - 01-10-1994 - Laserfiche WebLink

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nitre.. Thus, the first reason points at direct costs an effect three times greater than the other. ..osed by nonresidential development, while the second, But even if further investigation were to show that the suggests a less clear. indirect effect. empirical findings are basically correct,one canna draw the There is no doubt that both nonresidential development conclusion that nonresidential development brings about and property taxes have nsen rapidly in DuPage County. increased property taxes. The simultaneous occurrence of Our research reveals: high rates of nonresidential growth and Increasing tax levies • Population growth in DuPage was very rapid 0 10 percent) does not necessarily imply that the costs of development during the 1960-1980 period, but populatiun increased cause the latter. Both for the county as a whole. and for only 18.8 percent from 1980 to 1990. smaller units within it,there are mane reasons why the two • Employment growth for jobs located in DuPage was 72 Phenomena might occur together. Below we offer several percent from 1979 to 1988, exceeding the 54 percent rise Possible explanations. Each of these possibilities should be in the number of emploved residents of DuPage. investigated further. • Total property values in DuPage increased very rapidly Loss of Revenue from Other Sources from 1982 to 1988, and property taxes as a percentage of DuPage governments may have had to increase property market value actually declined. The tax rate on residential taxes more rapidly Man other counties because of larger property in DuPage was 1.96 percent of market value in revenue losses from other sources. Our preliminary 1982 and 1.72 percent in 1988. investigation of this hypothesis suggests this is an Important • Property tax extensions in DuPage increased 135 percent factor for DuPage County as a whole: it may also from 1979 to 1988. (The average for Chicago's other four differentiate individual taxing bodies within DuPa_e. suburban counties, which generally experienced less Furthermore, a large pan of this revenue loss consists of economic growth during the period, was 102 percent). state school aid. In 1988. DuPage County received 5743 per It is therefore possible that the relatively rapid employment Pupil in state aid, while the other collar counties received an growth in DuPage County (and attendant nonresidential real average of 51,265 from the state. Since this aid is provided to estate development)is one explanation for the relatively individual school districts, it is quite possible that districts rapid growth in property tax extensions. Other researchers with large increases in their tax base (due, in pan.to have investigated this notion and come up with mixed nonresidential development) suffered larger losses and thus results. A 1987 study of jurisdictions in the Philadelphia had to increase their tax levy more than districts without metro area found that measures of employment and nonresidential development. This is consistent with the commercial property value were positively associated with findings of the DuPage study, but clearly indicates an local government expenditures per capita, but a 1989 study entirely different reason for the relationship between of central cities did not find such a result. nonresidential development and increased property taxes There are several ways of studying the relationship ��that stud} suggests: not increased costs, but declining between economic growth and property taxes.The study by revenues, due to the state aid formula. the DuPage County development department follows one particular approach.After reviewing its methodology, we Lowered Tax Price concluded that the general workmanship of the regression The larger a proportion of the tax base is nonresidential, the analvsis was a satisfactory exploratory effort. But it should cheaper it is for residents to increase expenditures.The "tax not be interpreted as a conclusive study. Our review, price" (i.e. the share of the costs of local services borne by however, raised many questions about aspects of the study. the average household)for government services faced by For instance, the 1986-1989 period studied was quite DuPase residents may have declined because of the growth atypical since it was the height of the building boom. Also, of the commercial tax base.This hypothesis, if true,could been difficult to interpret indeed lead to findings similar to those of the DuPase stud}: the results of the study have because of the variables used. Rather than comparing tax areas with a high nonresidential tax base experience rates,it used the total tax levy as the dependent variable. increases in total tax levy.This could happen not because But of course the common wisdom never promised that the nonresidential development increases costs, but because it total tax levy would drop—as an area develops,the levy represents an opportunity for residents to increase services inevitably rises—but that rates would go down. Furthermore, at relatively little cost to themselves. the study suggested that not all development contributes We conducted a preliminary investigation to test this equally to increases in the levy; rather, nonresidential hypothesis.The results show very clearly that school districts development has a three times greater impact than residential with a high proportion of their tax base in nonresidential use development. But there are two problems with this statement. spend more per pupil than other districts.The 10 elementary First, the measure of nonresidential development was school districts with the highest proportion of nonresidential somewhat indirect, in that it counted the number of firms, tax base spent an average of 55.025 per pupil in 1990, while rather than, say, square footage. Second, since the types of the other 20 districts spent an average of 54,100 per pupil. development were measured in different units (number of This holds true regardless of the total assessed value per firms vs. residential assessed value), one can't really pupil. It appears that local school boards display some compare regression coefficients and say one variable has tendency to respond to the lower"price" for schools faced by residents of districts with a high proportion of nonresidential uses. The authors are all faculty members at the the Ccntt.•for Illinois at Economic o. However, before this hypothesis can be accepted, more Research for this article w•as conducted by the Center for Urban Economic Development at UIC,and sponsored by the East west Corporate Corridor detailed analysis of the data, as well as of the actual decision- Association. making process of school boards, is needed. 2