Administrative Read Reference

Finances

Library and Special Taxes

Both local and public library districts are authorized to raise money through the levy of taxes for public library purposes. The following information indicates various types of levies that may be used to provide financial support for the library.

However, the Property Tax Extension Limitation Law (PTELL), commonly called "tax caps" if applicable, changes all of these taxes. PTELL permits no new taxes without a referendum and elevates the "limiting rate" as the only important tax rate factor which applies rather than these individual rates.

General Corporate Fund Taxes

Purpose: To establish, maintain, and support the public library or libraries within the district.

Limitations: The annual maximum tax rate is .15% or such greater amount not exceeding .60% of all taxable property within the district if authorized by referendum.

Citation of Authority: 75 ILCS 16/35-5; 75 ILCS 5/3-1 et seq.

Specific Restrictions: This fund covers most general library expenditures. The monies and accrued interest can be spent for any proper library purpose. While some accumulation in the fund is unobjectionable, it should not be used for accumulation. In such instances the balances should be transferred into the Special Reserve Fund.

Personal Property Tax Replacement Funds

Explanation: Illinois personal property tax replacement funds (functionally a corporate income tax) are required to be placed into a special fund in the state treasury known as the Personal Property Tax Replacement Fund. This process originated with the adoption of the 1970 Illinois Constitution. It provided for the elimination of personal property taxes which, up to the time of the abolition, was a significant funding source for units of local government in Illinois.

Although the drafters of the 1970 Constitution were committed to the abolition of personal property taxation, they could not agree upon a complete methodology for the abolition. Therefore, the Revenue article (Article IX), specifically in Section 5(c) provided that on or before January 1, 1979, the General Assembly would be required to abolish personal property taxes and replace all of the lost revenue to units of local government and school districts by some mechanism.

As that January 1, 1979, deadline loomed, the General Assembly had difficulty agreeing on a replacement mechanism. As a result, the only agreement the General Assembly could come to was adding to the income tax, specifically the tax rate paid by corporations (which itself had been created by the 1970 Constitution), a 1% rate increase to fund the personal property taxes otherwise lost.

Under the statute, the monies in the Personal Property Tax Replacement Fund and all interest earned thereon, is required to be paid out under the provisions of 30 ILCS 115/12. While the entire distribution scheme of this section is quite long, the pertinent section containing mandatory language with respect to libraries, in pertinent part, states:

"Any municipality … which receives an allocation based in whole or in part on personal property taxes which it levied pursuant to Sections 3-1, 3-4 and 3-6 of The Illinois Local Library Act and which was previously required to be paid over to a public library shall immediately pay over to the library a proportionate share of the personal property tax replacement funds which such municipality … receives; provided that if such public library has converted to a library organized under The Illinois Public Library District Act, regardless of whether such conversion has occurred on, after, or before January 1, 1988, such proportionate share shall be immediately paid over to the library district which maintains and operates the library."

Therefore, any municipality, such as a city or village, that receives an allocation of personal property tax replacement funds from the State Treasury, because in part it had previously levied a library tax (i.e., prior to 1978), is mandated to pay over to the library "immediately" that proportionate share. Even if the library is no longer a city, village, or local library and has converted to a library district, the same proportionate share "shall be immediately paid over to the library district." This language permits no diversion of funds to the city or village which were previously levied and collected for library purposes or which underlie the pro rata allocation of personal property tax replacement funds.

For the past few years the Department of Revenue has published online the actual amounts paid or distributed from the Personal Property Tax Replacement Fund to the units of local government. The list, by county and fiscal or calendar year, can be found at: http://tax.illinois.gov/LocalGovernment/Replacement/.

If a library district separately existed prior to 1978, it should be receiving personal property replacement tax distributions directly from the Department of Revenue and should be listed in its respective county for such distributions. However, all other libraries that existed prior to 1978 (i.e., as a local library of city, village, or township type) will not be separately listed and will never be separated by the Department of Revenue. Instead, they are embedded in the distributions under this statute to the city, village, or township. The amounts that should be immediately paid to them are included in the amounts shown for payment to their "host" municipality or township. Of course, if the library did not exist until after January 1, 1979, then it is not entitled to any personal property taxes.

Since the statute quoted above makes clear that the library is entitled to its "proportionate share" from the "host" municipality, the remaining issue is how to properly calculate said proportionate share. Since the measurement of distribution shares from the Personal Property Replacement Tax Fund depended on the 1978 property tax levies (both real and personal property taxes were last combined in the 1978 tax year), research from the tax extension records at the pertinent county for the "host" municipality or township and the public library is necessary. Once obtained, the library taxes, whether they were limited to the general corporate library tax or also included taxes for the building and maintenance of the library or the working cash fund or any of the special levies for library purposes, can be calculated as the share of the total municipality or township taxes that year. It is best to do the calculation by dollar amounts rather than effective rates. Of particular note in context of townships is that the levies in 1978 for township road and bridge funds are totally separate and not to be included in the calculations of the library’s pro rata share. This is because the township road and bridge funds are separately calculated by the Department of Revenue for distribution of personal property taxes and are not included in the distribution being discussed here.

While this is a complicated statutory process and can be a difficult mathematical process, the biggest burden is that the history reflected above as well as the proper methodology are little known to local units of government, as well as many municipalities and townships. Frequently, the distributions have never been made correctly since the 1980s first distribution from the Department of Revenue or, if done correctly originally, have been lost in the intervening years and are not being paid as the law requires.

Basically, if the library existed before 1978, it should be receiving personal property tax replacement funds, either directly from the state if it existed as a district in 1978 or before, or through its host municipality or township if it is a local library or was converted to a district after 1978.

Purpose: These funds substitute for the revenues once derived from ad valorem taxes on personal property. Districts downstate may obtain 48.35% of the total Illinois yearly fund. The ratio for each taxing district is the ratio that the tax base of that taxing district bears to the downstate tax base. The base year for such determination is 1978. The monies must be first applied to debt service, then to the proportionate share of pension or retirement obligations. The balance is placed in the general fund.

Citation of Authority: 30 ILCS 115/12; 75 ILCS 16/10-45(a).

Building & Maintenance Fund Taxes

Purpose: To maintain, repair or alter the physical facilities, or equipment, to purchase buildings, sites, furniture, or equipment, to construct or rent buildings required for library purposes.

Limitations: This is a separate tax from the general fund with a maximum tax rate of .02% of the value of all the taxable property in the district. The board must adopt a resolution each year to levy this tax and, within 15 days after its adoption, publish it at least once within specific notice guidelines. If no petition, which includes the signatures of at least 10% of the registered voters of the library, is filed in opposition to the tax within 30 days after publication, the district may levy the tax. If such a petition is filed, the library may rescind the action or place a referendum that concerns the tax on the ballot at the next general election. If successful, the district may levy the tax.

Citation of Authority: 75 ILCS 16/35-5; 75 ILCS 5/3-1 et seq.

Specific Restrictions: This fund covers or supplements most library capital improvement needs, custodial and maintenance services, and major equipment needs. The money and accrued interest should either stay in the fund for these purposes or be transferred, at year's end, to the special reserve fund. It cannot be spent for audit, IMRF, SSN, tort liability, or insurance; but if these special taxes are used (or general fund taxes) it is not necessary anyway.

Working Cash Fund and Taxes

Purpose: To provide funds for a library to have cash on hand from one fiscal year to the next and to meet the demands for ordinary and necessary expenditures for library purposes.

Limitations: Collection of the tax shall not be anticipated by the issuance of any warrants. For library districts, the balance cannot exceed .2% of the full cash value of all taxable property within the district as of the date the fund was created, if prior to 1998, or as of that date. For local libraries, the balance cannot exceed .2% of the full cash value of all taxable property within the district as of the date the fund was created, if prior to 1978, or as of that date. The fund may receive such appropriations and any other contributions desired. No public library may levy this tax for more than four years, although the four years need not be consecutive. The annual rate limit is .05% for each of the four levies. The fund may be carried over without reducing future tax levies. The proceeds may be temporarily transferred to the general library fund and disbursed in anticipation of taxes. Such taxes when collected and after payment of tax warrants should reimburse the fund.

Citation of Authority: 75 ILCS 16/30-95 and 16/35-35; 75 ILCS 5/3-9 and 5/4-13.

Specific Restrictions: The first tax levy is subject to a back door referendum. Any taxpayer may file, within 30 days of the ordinance, a petition signed by 10% of the registered voters of the library requesting a referendum. The library may rescind the ordinance or submit the question to the voters at the next election. If a majority favors it, the tax is authorized. If it fails, the tax cannot be levied. Presently, no notice requirement of the ordinance's passage exists in the statute.

Tort and Insurance Fund Taxes

Purpose: To pay costs of settlements or judgments and to pay costs of protecting the library or its employees against liability, property damage, or loss including self-insurance pools, principal and interest on bonds, risk-care management programs, purchase of insurance, administrative costs, employee wages, legal and consultant services, workers' compensation, and unemployment insurance.

Limitations: This tax may be levied at a rate sufficient to pay all tort costs, insurance costs, and the like listed above, and the library may establish reserves for expected losses. The library may enter into an intergovernmental contract not to exceed twelve years for joint self-insurance. Funds due under such contracts are not a debt. This tax is in addition to that authorized for the general purposes, is not subject to any referendum, and is not limited by rate but only by the fact that expenditures must be for a proper purpose as noted above.

Citation of Authority: 745 ILCS 10/9-107.

Specific Restrictions: Cannot transfer the collected taxes or any accrued interest into any other fund or use for any other purpose.

Some libraries budget and levy separately for worker's compensation and unemployment compensation. This method is not illegal; however, all derive their legal authority from the same statute and separate accounting is not required. When this tax is used to fund risk management and loss control programs, the best practice is to have a written, board-adopted risk management and loss control policy setting out the provisions.

Audit Fund Taxes

Purpose: To pay all expenses encountered to complete the annual audit.

Limitations: There is an annual tax limit of .005% of the value of all taxable property in the district. This is in addition to the general fund taxes and is not subject to any referendum.

Citation of Authority: 50 ILCS 310/9.

Specific Restrictions: Cannot transfer the collected taxes or accrued interest into any other fund or use for any other purpose except the audit or certain limited bookkeeping expenses which facilitate or reduce the cost of the audit.

Municipal Retirement Fund Taxes

Purpose: To cover the library's costs of participating in the municipal retirement fund designed to provide annuities and benefits to library employees. Limitations: The tax may not exceed the amount appropriated for contributions to the fund. Revenue under this tax may be used only for the referenced purposes.

Citation of Authority: 40 ILCS 5/7-101 et seq.; 40 ILCS 5/22-401 et seq.

Specific Restrictions: Cannot transfer the collected taxes or any acquired interest thereon into any other fund or use for any other purpose.

Medicare Fund Taxes

Purpose: To meet the demands of the federal Medicare program.

Limitations: May increase tax levy above the amount authorized when such is necessary to meet the cost of the federal program.

Citation of Authority: 40 ILCS 5/2l-109; 40 ILCS 5/2l-110.1.

Specific Restrictions: Cannot transfer the collected taxes or any accrued interest thereon into any other fund or use for any other purpose except the Medicare fund.

Social Security Fund Taxes

Purpose: To cover the requirements placed upon the library due to the Federal Social Security Insurance Program.

Limitations: The tax is based on the actual cost incurred by the library and is not subject to any referendum. The library is allowed to tax separately for these actual costs beyond its authorized tax ceiling.

Citation of Authority: 40 ILCS 5/21-110.

Specific Restrictions: Cannot transfer the collected taxes or any accrued interest thereon into any other fund or use for any other purpose except the Social Security Fund.

Library Building (Referendum)

Purpose: To rebuild or restore a library building which was destroyed or seriously impaired.

Limitations: Must adopt an ordinance and such ordinance must be submitted to and approved by the voters. The annual tax may not exceed .08333% of the assessed value on all taxable property in the district and cannot last more than 10 successive years or exceed the difference between the actual cost of reconstruction of the building and insurance benefits paid to the board as a result of the loss.

Citation of Authority: 75 ILCS 16/35-30.

Specific Restrictions: The tax may not be effective until the library presents the issue to the voters for their approval in a front door referendum.

Special Reserve Fund

Purpose: To provide monies for the library physical plant needs or for emergency expenditures.

Limitations: The fund consists of the unexpended balances of the proceeds received annually from the annual public library taxes provided that the board has resolved to develop and adopt a plan for expansion or repair within 2 years after the adoption of the special reserve fund. However, these funds may also be used to meet emergency expenditures. The board must also provide in the annual appropriation ordinance for the accumulation of any unexpended balances.

Citation of Authority: 75 ILCS 16/40-40; 75 ILCS 5/5-8.

Specific Restrictions: The plan adopted to use the monies of the special reserve fund may subsequently be amended as circumstances require. Unless the accumulation actually reaches six figures, we are of the opinion an actual architect's building plan is not necessary. A relatively definite and detailed building or remodeling plan should be in place within the 2 years if the fund is in 5 figures, even if it is only a long-range plan. Actual interest as well as new transfers stay in this fund until expended. The fund has no accumulation ceiling.

Gifts and Memorials Fund

Purpose: Any person or firm desiring to make donations of money, personal property, or real estate for the benefit of any library may vest title to the donation in the board of library trustees of the district receiving the donation. The board is considered to be a special trustee of such donated property.

Limitations: The donation, in order to be accepted in the first instance, is subject to the terms and conditions of the donor (i.e., if the donor's restrictions are not agreeable to the board then the gift need not be accepted). However, if the gift is accepted, the library's use of the gift is limited to the donor's directives.

Citation of Authority: 75 ILCS 16/30-75; 75 ILCS 5/1-6.

Specific Restrictions: Items which the board itself could not invest library funds in, such as stock and improved real estate, may still be accepted and held by the board as trustee of the gift for a reasonable period of time.