Important tax deadline approaches for O’Fallon City Council. Here are the details

The deadline looms for the city to approve its property tax levy and submit it to St. Clair County while debates on tax relief continue, with local school administrators wanting to make sure they are included in the conversation.

Final action is slated for the O’Fallon City Council meeting Monday Dec., 20, which advanced the property tax levy ordinance Dec. 6 and two amendments to the Home Rule municipal retailers’ and service occupation taxes that would increase sales tax by 1/2 of 1%, bringing it to 1%.

The additional 1/2% will provide $2.1 million in revenue for the city, with half going to the parks’ operations and the other towards Master Plan implementation, creating a Build O’Fallon Trust Fund strictly to be used for council-approved capital projects.

In the CIP for 2023-2027, approved Dec. 6, there are $19 million worth of unfunded projects, which means no funding sources have been identified.

That includes stormwater projects, downtown redevelopment, economic development, hiking and biking trails, improvements to aging buildings and parks, swimming pool replacement, new facilities for an additional fire station, public works and library, new parks in such underserved areas as northwest, northeast and southwest O’Fallon, completion of the Family Sports Park and equipment.

The city’s current financial situation includes declining tax revenues in property, telecommunications, cable TV franchise, and utility, which has been extended.

The council advanced the tax levy ordinance in a vote of 9-4 with Aldermen Ross Rosenberg, Dennis Muyleart, Jessica Lotz, Kevin Hagarty, Roy Carney, Todd Roach, Tom Vorce, James Campbell and Nathan Parchman voting yes and Aldermen Jerry Albrecht, Stephanie Smallheer, Christopher Monroe and Dan Witt voting no. Alderman Gwendolyn Randolph was not present for the vote.

The annual tax levy must be filed with St. Clair County by the last Tuesday in December, which is Dec. 28. The proposed tax levy runs from May 1, 2021, to April 20, 2022.

The sales tax amendment vote was 12-2, with Albrecht and Monroe opposed.

The Illinois Department of Revenue requires the sales tax increase must be an amended ordinance since the city already has an 1/2% sales tax in place. The ordinance needs to be submitted to the state by April 1, 2022, for the increase to be effective July 1, 2022.

Starting in September, the Finance and Administration Committee has reviewed various types of new and existing revenue sources to determine if there were more equitable forms of taxes that would better serve the future needs of the growth and development of the city. The staff has reviewed 13 new revenue sources.

Ongoing and Escalating Tax Exemption

One of the issues is the increasing Disabled Veterans Tax Exemption, which is affecting the city’s budget.

The Disabled Veteran Tax Exemption is increasing from $70 million to $87 million — and climbing, O’Fallon Director of Finance and Administration Sandy Evans said.

That will cause a decrease in total EAV and mean a 5.8% increase in the property tax rate.

Evans explained, if the property relief is not approved, the tax levy would have to increase 5.95% to a rate of 0.9551 and would require a Truth in Taxation hearing.

“This is an ongoing and accelerating problem, so the property tax rate would not only increase this year, but likely every year,” she said.

The current Disabled Veterans Exemption totals $90,278,984, a 28% increase from the previous year. This amount has increased by $2,557,897 since the October finance committee meeting.

Disabled veteran exemptions now represent 11.5% of O’Fallon’s residential EAV.

School District Concerns

After discussions began Sept. 27, the finance committee agreed to pursue the sales tax hike at its Oct. 25 meeting, and school administrators attended the Nov. 22 committee meeting. They said they were not asking for anything but wanted to be part of the conversation regarding revenue sources. They spoke of their facility needs.

On Dec. 6, in public comments, two school administrators, Carrie Hruby, superintendent of O’Fallon School District 90, and Dawn Elser, superintendent of Central School District 104, spoke.

The city had set Jan. 24 for a meeting with school officials regarding tax relief, and the superintendents both expressed concern about passing the sales tax levy before they had an opportunity to meet.

Property taxes are a main source of revenue for public schools. On average in Illinois, local property taxes are about 50% of the total funding.

Mayor Herb Roach said the meeting would still take place. At the November committee meeting, he had said the council needed all the facts, and that would give everyone enough time to gather information.

Property Tax Relief

Evans said increasing the home rule sales tax will allow for property tax relief, which means less burden on residents, as well as providing funds for projects listed in the 2040 Master Plan and Capital Improvement Plan (2022-2027).

She said studies have shown, overall, O’Fallon residents only pay 40% of sales taxes and visitors pay the other 60%. Eliminating the Parks and General Fund tax levies could reduce a household’s property tax by $85 a year — for a $250,000 home. That would likely be a $70 per year increase in sales tax per household, on average, and a savings of $15 a year.

The rate-setting EAV is the base for next year’s estimate as provided by the county, which is projected to be $757,055,567. EAV is estimated assessed value, which is 1/3 of a home’s fair market value.

Estimated Assessed Valuations

St. Clair County has estimated it will apply a 1.02% multiplier for O’Fallon Township and a 1.01% multiplier for Caseyville Township, thereby increasing the EAV by $7,684,114.

Evans said because of the number of petitions that again could be filed with the Board of Review about property assessments, the projected EAV was reduced by $2 million, which is lower than the 2020 final rate setting EAV.

Therefore, the estimated rate setting EAV for the 2021 Tax Levy is $762,739,681.

She said the current estimate the county provided showed no additions to the tax rolls for new construction since the Oct. 20 estimate, so staff is confident the EAV will increase.

The tax levy proposal provides for property tax relief by eliminating $100,000 from the General Fund and $680,000 from Parks. Based on the current EAV estimate, the new tax levy rate will be reduced by 5.35% from the previous year to 0.8529.

The property tax relief also includes the Video Gaming Push Tax in Illinois, which already moved forward Oct. 18, and will go into effect May 1, 2022. It is expected to add $100,000 to $300,000 in revenue.

The tax levy is based on dollar amount, not by rate. If the EAV is even higher than projected, the tax levy rate will be lower, and if the EAV is lower, the tax levy rate will be higher.

Retail Sales Tax

The city’s largest retail businesses are four big-box stores that make up over 40% of the sales tax revenue. Only 9.4% of shoppers are from O’Fallon.

If the sales tax hike is approved, O’Fallon will be at 8.35%. To compare to other neighboring towns, Fairview Heights is already at that rate. Shiloh is 7.35% (but 8.35% in Dierbergs shopping center); Collinsville is 8.60%/8.10% for the St. Clair and Madison counties boundaries; Belleville is 8.10%; and Edwardsville is 7.35%. Those figures do not include special business tax districts in Belleville, Collinsville, and Edwardsville.

Because the city is home rule, sales tax is not applied to groceries or medical prescriptions. The sales tax is applied on prepared foods, however.

The Auffenberg car dealership’s relocation from the O’Fallon Auto Mall to Shiloh will mean a sales tax loss of $1 million. However, Evans said the $1 million sales tax loss will be offset by the estimated increase in income tax and use tax because of the 2020 census number additions. That should account for $1.184 million in revenue, she estimated.

Minimum wage will be going up in January to $12 an hour, and by 2025, will be $15 an hour, in the state.

Next Steps

After approving the tax levy Monday, Dec. 20, the next step would be to approve the property tax relief program, which is needed to remove the general fund and park levies.

Then the increase in sales tax must be approved in an ordinance and must be certified and sent to the Illinois Department of Revenue, which needs it by April 1 to become effective July 1 of the same year.

The language that establishes the Build O’Fallon Trust Fund for capital funding of Master Plan projects would need to be approved.

Evans said it may take several years to grow the Build O’Fallon Trust Fund account to build funds for future generations. The money can be used as a match for grants, and the fund can be designated as “assigned” in the budget and can only be used for a specific purpose. It could also reduce cost of issuing bonds.