If the Evidence-Based Funding formula in Senate Bill 1 were a Jenga tower, the impact of Governor Bruce Rauner’s vetoes on the Property Tax Extension Limitation Law (PTELL) and Tax Increment Financing (TIF) provisions would be akin to pulling two wooden planks from the base. If the move is cautiously calibrated the tower might remain standing afterward, but even so the game is unlikely to last long.

Without a steady hand, here’s how it could end.

The SB1 formula and the formula in force today have in common a key component in the central per-district dollar calculation: Equalized Assessed Value. In the old formula and new, the district’s EAV–a result of a district’s property values and tax relief–is added to other concerns in order to arrive at the amount of state funds a school district will receive. In our Jenga tower, EAV is not a single plank, but rather a full layer of wooden tranches.

SB1 keeps most of the current TIF language of the School Code, which holds that when a school district’s unique EAV is being composed you take the total property and tax value for the area then remove any spikes in the numbers caused by new developments in the area’s TIF districts (at least until those new developments have paid off their tax debts). The idea is to ensure that the school dollars coming back to a district are based on the current–not future–property tax revenue the district is able to generate.

Rauner’s veto, however, adds the TIF spikes into a district’s EAV. Meanwhile, the higher a district’s EAV, the fewer funds it receives from the state. Using Chicago as an example, Bobby Otter of the Center for Budget and Tax Accountability explains the concept:

“Chicago has about $6.5 billion in EAV TIF districts. That doesn’t show up under EVA, either real or used, in any General State Aid data. That’s not in there. So if you’re going to add TIFs back in, you’re adding $6.5 billion in EVA into the model. Chicago has an EVA of around $65 billion, and if you add in TIFs you get over $70 billion, but CPS can’t access any of that additional money,” he said.  

A Full List of TIF Districts By County

Aside from inflating the EAV, this move destabilizes the tower in other ways. The Evidence-Based Funding formula takes some of the volatility out of state aid shortfalls in areas where property values have fallen. It does so by creating a new Adjusted EAV, which is a rolling three-year average EAV. This Adjusted EAV is also multiplied by the local tax rate to get a clearer picture of real receipts in the area, the product of which is then used to determine school district’s local tax capacity and school adequacy targets through separate formulas.

Removing PTELLs

Without the inclusion of other counterbalancing economic forces, a two-year TIF spike, while temporarily profitable for an out-of-town developer, could lower state funding to an already-struggling school. Rauner doesn’t include any such counterbalances in his TIF vetoes. Instead, he removes the PTELL limitation plank.

PTELLs are treated much the same as TIFs in the current School Code in that they’re carefully accounted for during the EAV construction process to ensure state dollars reflect actual property values instead of inflation rates.

But Otter said the current model may no longer fit the times. “Originally, the intention of PTELL was to help homeowners in some areas, because we are so reliant on property taxes to fund education in the state it was a way to slow down property taxes on a year to year basis. But the calculus has kind of changed now with inflation being so low.”

SB1 tries to put some space between property tax pressures of low-income districts and the normal costs of inflation by creating a PTELL EAV, which Rauner vetoed. This value is found by taking the normal EAV, multiplying it by any yearly Consumer Price Index increase, then adding or subtracting the EAV of any new properties as they’ve come and gone over the year.

A Map of PTELL Counties

The PTELL EAV plays the same role in the same calculations as SB1’s new Adjusted EAV, affecting just as many layers of numbers across the board. And by striking its protections from the bill, Rauner risks many of the same financial imbalances as he does with his TIF veto.

“It’s an interesting move because a lot of the suburbs are going to be affected by this. Most of the suburbs have PTELL districts. What it’s going to do is raise the EAV of a number of these districts, especially in the Chicago area,” Otter said.

A List of PTELL Districts by County

If Rauner aims to keep the Evidence-Based Funding formula balanced, he may be in luck. Many of the same lawmakers currently negotiating the fate of SB1 post-veto were serving together in 2014 on the Senate Education Funding Advisory Committee, and even as negotiators Sens. Jason Barickman and Andy Manar now struggle to hash out a Rauner-friendly agreement this year, the two concluded together with other members in their final report that PTELL funding needed a close examination.

In a presser after Rauner’s vetoes, Manar reserved his strongest language for criticism of the two vetoes, calling the move a “a scalpel right at the heart of a small number of school districts, many of which are least funded in the state with the highest rates of poverty and the highest property tax rates. That is deliberate… and only people with knowledge and know-how would be afforded the ability to do that.”

Although the PTELL and TIF exemptions affect Cook and the collar counties as much as downstate, a Democratic Senate analysis estimated as many as 60 districts to be affected by these changes. As a result, the issue stretches across party lines and is likely to become the first major flashpoint in the latest chapter of negotiations.