No, the expiring Uptown TIF and Rivian tax breaks won’t solve Unit 5's financial problems
Voters living in McLean County's largest school district, Unit 5, could soon have an important decision to make – whether to approve a referendum that would raise their taxes to better fund schools.
Unit 5 faces an $11 million-and-growing budget deficit that district leaders say must be urgently addressed; it's already led to initial cuts. If that referendum does happen, there will surely be a tense political campaign for and against the tax increase, with accurate information key to the public's understanding of the issue.
But there already are misperceptions about Unit 5’s financial situation. According to Unit 5’s public-opinion consultant, the three most notable ones are related to how much money the district will get from three sources:
- Expiring Rivian tax breaks
- Expiring Uptown Normal Tax Increment Financing (TIF) district
- Rising home values in a hot Twin City housing market
During recent public-feedback sessions, some attendees clearly overestimated, or misunderstood one or all of the above factors. That could lead them to a misinformed vote for or against a possible referendum.
“All of these are concerns of the community, and they need to be addressed," Ed Sullivan, the Unit 5 consultant, recently told school board members. “That's the one thing about doing community engagement: If you do not address those, then there's going to be problems down the line as you move forward.”
The reality is that, while helpful to Unit 5, none of the three factors – TIF, Rivian, Rising Home Values – will create enough new revenue to meaningfully address the district's budget deficit.
Here's a closer look at each one.
Rivian Tax Breaks
As part of the effort to lure Rivian to Normal, Unit 5 and several other taxing bodies agreed to give the electric automaker property tax breaks for five years. In total, Rivian avoided paying around $3 million in taxes over those five years, according to WGLT analysis of McLean County property tax and treasurer records. This year's tax bill is the end of that five-year deal.
So starting next year, Unit 5 stands to get an around $750,000 in new tax revenue from Rivian annually – the most for any taxing body. That could go up if Rivian makes further improvements to its property, thus raising its value, although its most valuable parcel was just re-assessed in 2021 and doubled in value. (A property's assessed value is used to calculate a property owner's tax bill.)
There's a big caveat here: The "budget deficit" that Unit 5 is trying to address is in its Education Fund. The Education Fund only gets about half of overall incoming tax revenue. So, if the current Education Fund deficit is about $11 million, new Rivian money will plug about $375,000, or 3.4%, of that hole.
“Does it help? Well, absolutely. But it doesn’t solve the problem," said Marty Hickman, Unit 5's chief financial officer.
Uptown Normal TIF District
The redevelopment of Uptown Normal over the past 20 years has been largely supported by a Tax Increment Financing (TIF) district that began in 2003. TIF is an economic development tool that allows a town like Normal to capture and spend the new tax revenue generated in a specific area on that area – in this case Uptown. Taxing bodies like Unit 5 still keep getting what they were getting before, but all of the new tax money (the "increment") is diverted into a pot of redevelopment money for up to 23 years.
The Uptown TIF will mostly expire in 2026. Sullivan, the Unit 5 consultant, noted in a recent school board meeting that some of those who attended recent public-feedback sessions misunderstand what's at stake.
"There were some misperceptions on potentially the (Unit 5) school district getting $154 million once that TIF district ends," Sullivan said.
In reality, Unit 5 would get around $1.6 million in new money once the Uptown TIF expires. But given the timing of tax bills and payments, that wouldn't start until 2028. And again, Hickman said Unit 5’s Education Fund will get only about half of that money – so around $800,000. The current deficit, again, is $11 million and growing.
Here's the math on that: Normal Finance Director Andrew Huhn said the EAV, or tax base, of the Uptown TIF district rose from $14.7 million in 2003 to around $43.5 million today. That's $28.8 million in EAV growth. Unit 5’s tax rate is $5.61 per $100 in assessed value, so about $1.6 million in new money.
There's a caveat here, too: Uptown is not done being redeveloped.
The TIF was extended another 12 years (to 2038) for a few properties in Uptown that are largely town-owned and not generating much tax money currently – like the future sites of the Trail East and Trail West developments just north of the circle. If those slower-than-expected developments do actually happen, the EAV will rise even more, yielding more new tax money for Unit 5.
“They will certainly add to that $28-29 million EAV. How much, I don’t know for sure. They will be significant,” said Huhn. (Trail East and Trail West are planned as $50 million to $60 million, mixed-use buildings.)
Confused? Well, TIFs are confusing.
“It's all about very long-term economic development. There's a short-sighted argument about just give (the taxing bodies) the money now, and if you extend it, you're hurting the kids. But it's really a non-issue, because the TIF itself has created the EAV and the tax they're eventually going to get," Huhn said. "So you are taking a bit of a risk. But this has been very successful by anyone's measure. And that's why it takes 20 years to get that payback, and once that's done, it continues on for the next 100 years and the EAV grows and they got that money then.”
Rising Home Values
Anybody who's tried to rent or buy a home in Bloomington-Normal recently knows it's a very hot market, with low inventory, quick offers, and rising prices. After nine years of market stagnation, "there was a turning point in 2019 and average property values increased by 25% for a net increase of just under $40,000," according to an April housing study from the Bloomington-Normal Economic Development Council.
Yes, Unit 5 will see more tax money as a result of rising home values. But there won't be any sudden influx in new money, officials told WGLT.
The local tax base, or EAV, produces the bulk of Unit 5's budget. When the EAV goes up, Unit 5's tax rate could stay flat and schools could still get more tax money. The EAV has increased by only 1-3% the last several years; the highest it got in recent history is between 7-8% just before the Great Recession.
Signs are pointing to something higher than the roughly 2% in EAV growth that Unit 5 received in the most recent tax year, said Hickman, the district's CFO.
"I do expect a better increase than we've seen in probably 10 years. But for us, from budget standpoint, we tend to budget more conservatively. I don't want to over promise on revenue. That's not a number we want to miss," said Hickman.
But by design, the nature of property tax assessment will smooth out any spikes in home values and subsequent spikes in property tax revenue. For taxing purposes, home values are set using a lagging three-year average. For example, City of Bloomington Township Assessor Steven Scudder's team is adjusting for 2022 in part by analyzing sales that took place in 2019, 2020, and 2021.
"When you talk to Realtors or mortgage appraisers, they see spikes in a three-month time period, like the selling period of May, June, July," Scudder said. "But (assessors) are looking more long term.”