Tax Decoded | Winter 2022
‘Uncapping’ Illinois’ Property Tax Extension Limitation Law
A simple property tax cap? It’s more complex than that.
Keith Staats, JD
Executive Director, Illinois Chamber Tax Institute
Deciphering Today's State & Federal Tax Law
As high inflation rates persist after hitting levels not seen since the early 1980s, the impact
is hurting both individual households and local governments. When costs rise, government
officials naturally look for ways to increase their revenues to offset those costs. The
typical solution? Higher property taxes—the primary way in which units of local government
finance their operations.
However, Illinois’ Property Tax Extension Limitation Law (PTELL) places limits on year-to-year
property tax increases for certain taxing districts within the state. Notably, though,
PTELL doesn’t apply everywhere.
When first enacted into law in 1991, PTELL was limited to the “collar counties” surrounding
Cook County—DuPage, Kane, Lake, McHenry, and Will. These counties, with the exception
of Cook, became subject to PTELL for taxes paid in 1992 (Cook County was added for taxes
paid in 1995). Counties outside these districts can opt to be subject to PTELL by referendum,
and voters in these counties can also opt out. As of 2020, 33 additional counties have
opted in, and 10 counties rejected attempts to become subject to PTELL by referendum.
Muddying the waters further, PTELL doesn’t apply to all taxing districts within the counties
subject to PTELL. Only non-home rule taxing districts are subject to it. Article VII, Section 6
of the Illinois Constitution defines a home rule unit of local government as “a county which
has a chief executive officer elected by the electors of the county and any municipality
which has a population of more than 25,000.” Other municipalities can opt for home rule
status by referendum. To date, the only home rule county is Cook.
HOW DOES PTELL WORK?
PTELL limits the year-to-year increase in the “extension” (i.e., the total taxes billed to a
property owner) for non-home rule taxing districts subject to PTELL. The law allows a taxing
district to receive a limited inflation-related annual increase on existing properties, but it
caps the impact in high inflation years to 5%. Increases in property tax extensions are limited
to the lesser of 5%, or the increase in the Consumer Price Index (CPI). This year, because
the CPI increase was greater than 5%—the first time since PTELL’s enactment—the 5% cap
is in effect.
Though PTELL is commonly called a “tax cap,” the designation is misleading. PTELL isn’t a
true tax cap, as it doesn’t guarantee that individual tax bills won’t increase more than the
law’s limitation. For example, property taxes could increase if:
- The property was in a location where some taxing districts are subject to PTELL and others aren’t.
- The voters of a taxing district subject to PTELL can approve an increase over and above the limitation by referendum.
- A particular property was under-assessed compared to other properties and then was reassessed to the correct value.
- Other properties declined in assessed value (e.g., a large industrial facility that paid a large amount of property taxes in prior years closes). In this case, the value of that property will be reduced, the overall tax base will be reduced, and as a result, the amount of property tax billed to the remaining property owners in the taxing district will increase in relation to the value of the properties.
Taxing districts subject to PTELL can also receive an increase greater than 5% or the CPI increase limitation. Situations where a greater increase can happen include areas in new construction and annexations. Of course, voters can also approve greater increases by referendum. Additionally, if a tax increment finance (TIF) district expires, and the TIF increment is received by the taxing district, that’ll increase the amounts to the taxing districts. (Admittedly, the subject of TIFs is another very arcane element of property taxation that I’ll be attempting to decode in a future column.)
NAVIGATING AGGREGATE EXTENSIONS
Another piece of the PTELL puzzle is aggregate extensions— the portion of a taxing district’s total extension subject to the limitation. Funds include the corporate extension for the taxing district and special purpose extensions, both made annually.
Some examples include self-insurance, pensions, unemployment, workers’ compensation, and road district permanent road funds.
However, some “fund extensions” for taxing districts subject to PTELL aren’t included in the PTELL limitations. Such examples include taxes for payment of general obligation bonds issued prior to the district becoming subject to PTELL and general obligation bonds issued after they were subject to PTELL if approved by voters.
The aggregate extension base is used to calculate the allowable increase and, generally, it’s the previous year’s aggregate extension that serves as the starting point on which the PTELL tax rate will be calculated. However, be aware that there are some exceptions, which, in the interest of brevity, I’ll spare you from in this column.
The limiting rate under PTELL is a district’s maximum aggregate tax rate for funds subject to PTELL. It’s calculated for each taxing district. Notably, the sum of all the tax rates for funds from taxing districts subject to PTELL can’t exceed the limiting rate. To determine this, the county’s clerk compares the sum of individual district rates to the limiting rate. If the sum is greater than the limiting rate, the clerk will reduce each rate proportionally to ensure the total doesn’t exceed the limiting rate.
As you can see, PTELL isn’t a simple property tax cap. Despite the law’s intention to moderate the amount of property tax increases, the true outcome is still dictated by a complex computation.