School Funding Commission
Property Tax Working Group
January 3, 2017
Dr. Michael Jacoby,
Illinois ASBO
Adequacy Level and Local Effort
Q. How well funded is the district with
an ideal equalized local tax effort (LCT)?
Q. How well funded is the district with
the current tax effort (Real Revenues)?
Q. How can we discount current tax
effort based on ideal local effort and %
of adequacy and promote potential
property tax relief?
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Overview of the Model
100% of
Adequacy
Target
1. Adequacy Target: How much
does providing high quality
education cost?
2. Adequacy Level: How wellfunded is the district?
Local Capacity: How much
can the district contribute?
Base Funding Minimum:
How much does the state
currently contribute?
Gap to Adequacy
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Adequacy Level
This model distributes dollars based on how adequately funded a
district is. The current level of funding for a district is its Adequacy
Level:
• The Adequacy Level is calculated by determining a district’s current
level of state funding plus its current level of local funding and
dividing this by the district’s Adequacy Target.
Adequacy Level =
Local Funding + Current State Funding
Adequacy Target
• For example, if a district has an Adequacy Target of $12,000,000 and
receives $4,000,000 in local funding and $5,000,000 in state
funding, its Adequacy Level would be 75%.
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How much can a district contribute?
• Local Capacity Target (LCT) is a calculation of local effort—the amount
a district would ideally contribute towards its Adequacy Target
• Calculating the Local Capacity Target:
 Step 1: Calculate an Effort Index for each district
o
o
High effort index = greater expected contribution
Low effort index = low expected contribution
Effort Index:
3 Year Average of EAV
Adequacy Target
 Step 2: Convert Effort Index to Local Capacity Target (LCT) by comparing all
districts in the state
o
o
LCT represents the percent of local support a district should ideally contribute
No district will be expected to pay more than 90% of their adequacy target
 Step 3: Adjust LCT to allow for equalization of tax rates and new funds
Districts with higher property wealth are expected to contribute a greater %
toward adequacy, while districts with greater adequacy needs contribute
less.
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How much can a district contribute?
• Some districts collect Real Receipts* from local taxes that are above their
LCT, some collect Real Receipts below their LCT
• For districts taxing below their LCT, the formula uses their calculated LCT.
 This means that districts are responsible for a portion of how inadequately
funded they are.
 However, as districts raise more revenue to reach their target, they will not lose
their spot in line for new state dollars.
• For districts taxing above their LCT, EBM adjusts their real receipts
downwards towards their LCT.
 Creates incentive for these districts to lower taxes because doing so will
increase their eligibility for state dollars.
 Adjustment is based on how far a district is from reaching their Adequacy
Target, so districts that tax at high rates but are still far from adequacy get the
biggest adjustment of real revenue towards their LCT.
*Calculation of real receipts can be found in Appendix
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The Local Capacity Target Adjustment in Action
100% of
Adequacy
Target
Local Capacity Target
District Taxing Below LCT
District Taxing Above LCT
Real Receipts
Adjusted Local Capacity
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Using the Preliminary Adequacy Level as a
Discount Factor
• Preliminary Adequacy Level is the district’s Adequacy Level in an ideal state
 Calculation is LCT + CPPRT + Base Funding Minimum
• This is the district’s percent of adequacy that would be funded if the district
were contributing its Local Capacity Target
• This Preliminary Adequacy Level is used as a Discount Factor to make 2
adjustments in the model
 In the calculation of a district’s Local Capacity, the Discount Factor is used to adjust
real revenue downwards toward the ideal LCT
 In the calculation of the Base Funding Minimum, the Discount Factor is used to
decrease the amount of the previous year’s poverty supplemental grant in the
calculation of how adequately funded a district currently is, allowing for a smoother
transition from a formula that incorporates poverty concentration to one that does
not
Using the Preliminary Adequacy Level as a Discount Factor means
that adjustments to formula components are based on need.
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Calculating Local Capacity (Over LCT Example)
Step 1: Calculate the Effort Index (EAV/Adequacy Target)
TYPE
EAV AVERAGE
(Greater of 3 YR Average
or Prior Year)
Adequacy
Target
Effort Index
Unit
$17,350,979
$5,285,866
3.283
Step 2: Convert Effort Index to Local Capacity Target (LCT) by comparing all
districts in the state (normal distribution)
Normalized Effort
Index = LCT
Percent
District
Calculated LCT
Amount
10.74%
$567,702
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Calculating Local Capacity (contd.)
Step 3: Adjust LCT to allow for greater equalization of state funds and potential tax relief.
Current Local Receipts
(EAV*OTR-Trans)
Over-LCT Amount
(Current Local
Receipts – LCT)
Discount Factor aka Preliminary Adequacy
Level [(LCT + CPPRT + Base Funding
Minimum)/Adequacy Target]
$804,709
$237,251
62%
Adjusted LCT
[LCT + (Over-LCT Amount x Discount Factor)]
Final Adjusted
LCT
$567,702 + ($237,251 x 62%) = $714798
$714,798
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Calculating Local Capacity (Under LCT Example)
Step 1: Calculate the Effort Index (EAV/Adequacy Target)
TYPE
EAV AVERAGE
(3 YR Average or Prior
Year if 10% less)
Adequacy
Target
Effort Index
Adjusted Index
(x 9/13 Elem,
4/13 HS)
HS
$443,290,161
$12,816,736
34.587
10.642
Step 2: Convert Effort Index to Local Capacity Target (LCT) by comparing all
districts in the state (normal distribution)
Normalized Effort
Index = LCT
Percent
District
Calculated LCT
Amount
45.77%
$5,866,220
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Calculating Local Capacity (contd.)
Step 3: Adjust LCT to allow for greater equalization of state funds and potential tax relief.
Current Local Receipts
(EAV*OTR-Trans)
Over-LCT Amount
(Current Local
Receipts – LCT)
Discount Factor aka Preliminary Adequacy
Level [(LCT + CPPRT + Base Funding
Minimum)/Adequacy Target]
$5,279,900
-$586,325
NA because current receipts less than LCT
Adjusted LCT
[LCT + (Over-LCT Amount x Discount Factor)]
Final LCT =
Calculated Effort
NA because current receipts less than LCT
$5,866,220
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