By: Mark Glennon*
You probably know the joke about what you get when a committee designs a racehorse. A camel.
But what do you get when an 88-member committee with seven subcommittees, comprised mostly of Illinois politicians, offers its ideas on property tax reduction? The draft report by the Illinois Property Tax Relief Task Force.
It’s pathetic. It’s a hodgepodge of maybe-be-this-maybe-that non-conclusions and half-baked evasions from different subcommittees. It omits any quantification of the ideas it presents and offers no concrete recommendations whatsoever that can reasonably be expected to lower taxes meaningfully.
I reached Joe Sosnowski (R-Rockford), a very sensible member of the committee who summarized it nicely:
As the current draft, the report is a collection of a bunch of thoughts with no real recommendations that was put together by a handful of people. There was no actual discussion or debate at the committee level on the draft report. This grossly oversized committee was created in a deal with the governor to convince a couple legislators to support an income tax increase being placed on the ballot apparently so they could have political cover. This is a complete disaster.
The document indeed reflects no indication of any input from fiscal realists, which is undoubtedly why Republicans are objecting strenuously, according to Crain’s.
By law, the final report was supposed to have been completed by December 31. One reason it’s late, according to Crain’s, is those members’ objecting to having their names on it, claiming their input was ignored. Good for them. No self-respecting people of either party should want their names on it.
Most important, in the end it’s focused not on tax reduction at all, but on a shell game –swapping lower property taxes for higher taxes on other things. That does no good for a state where the real problem is the total tax burden, making Illinois the “least tax-friendly state” in the nation, as Kiplinger said.
Here’s a key line from the draft: “New revenue sources will be needed to ensure that schools can continue to meet Illinois’ needs. New funding sources for schools could also go a long way toward reducing school levies and thereby reducing property tax bills.” Schools consume 62% of Illinois property taxes, though much higher in some areas, so shifting school taxes to the state means the tax reduction effort has morphed in a tax swap effort.
Insofar as we can summarize the barely intelligible draft, here is what it says:
The report endorses the notion of consolidating Illinois’ notoriously large number of governmental units, especially school districts. However, there’s no teeth in any proposal, deferring instead to local voters, just like consolidation laws already in place. That reliance has proved ineffective.
The consolidation section of the report lists various “thorny” problems, and therefore concluded that codifying a general rule to urge consolidation is “rife with risk.”
So, what’s left to recommend? The consolidation section lists just these minor things, most of which don’t even relate to consolidation:
- Close the loophole allowing districts to engage in continual bonding after a bond issue has expired.
- Allow school districts to petition for increased state funding to lower their levy.
- Mandate that school districts with significant cash reserves must either abate the excess reserves by lowering the levy or identify the purpose and utilization timeline of the funds
- Instruct the Illinois State Board of Education to establish best practices for school districts with regards to debt and reserve ratios and mandate long-term planning goals to assess the financials of a district
But here is the big one: Two subcommittees “recommend the identification of new revenue streams to fund education…. Both subcommittees recommend expanding the sales tax base to achieve this goal.” In fact, one subcommittee recommends entirely removing school funding from property taxes and shifting that to the state. Schools alone account for about $20 billion – about two-thirds – of total property taxes.
That’s right, raise sales taxes to fix the property tax problem! Our sales taxes already are seventh highest in the nation. In Chicago, they are a minimum of 10.25%.
What would that mean for sales or other taxes? The report doesn’t say, but we can tell you. Shifting school costs to the sales tax would mean Illinois sales taxes would more than triple. Shifting it to the personal income tax would mean they would have to double.
Various subcommittees did make some concrete suggestions on tax increment financing, but there’s no indication how these measures would cut overall taxes:
- Mandate a provision of 25% of all newly-created TIFs to be set aside for the school districts.
- Release all uncommitted TIF funds to public service providers if not used within five years.
- Shorten the timeframe for TIF districts from 23 years to 10-15 years.
- Tighten the definition of “blighted” to incorporate objective standards rather than an open interpretation of the “but for” requirement.
The PTEL Subcommittee:
Good luck seeing what if any property tax reduction would result from these suggestions by the PTELL Subcommittee. (PTELL is the current system of property tax caps, which every owner knows is full of holes.) The draft report certainly doesn’t provide any support for these, and the first one would actually raise taxes:
- Allow “recapture” of lost opportunities for tax extension increase by extending ability to compute current PTELL limits as if the maximum levy was taken within previous years.
- Consider allowing voter referenda to lower taxes in all PTELL taxing bodies.
- Study and remove, spread out, or limit growth elements in the PTELL formula for new construction and possibly TIF expiration, in order to reduce growth and volatility in our tax burden.
- If the overall Commission wishes to propose a Tax Freeze, extend PTELL to all home-rule and non-home rule taxing districts, and establish 0% CPI and allow0% for other growth rates, using the PTELL formula. If the overall Commission wishes to propose a Reduction to previous lower tax rates, then one simple potential. move would be to allow the PTELL formula to calculate a new extension based not on the current year extension, but on the lowest extension of the previous five years.
- Do not rule out eliminating PTELL entirely and relying on local governments and local voters to produce responsible funding and taxing levies.
Assessments and Exemptions Subcommittee:
- Increase homestead and senior exemptions in the collar counties to the same levels as Cook County. All other counties should have a right to increase their exemptions to the same levels by county board.
- Provide properties that qualify for a homestead exemption a 10% state rebate on the total amount of the property tax bill.
- Share industrial and commercial assessed value across the county for school funding.
- Increase training requirements of township assessments who represent townships with over $1 billion of valuation.
Those supplements to exemptions would be nice but the report doesn’t say where corresponding cuts to pay for them would be made. The other recommendations would have no impact on total taxes paid.
The Pensions Subcommittee offered these two gems:
- Enact the consolidation bill for downstate and suburban pensions.
- Second, “explore alternative methods of amortization.
That consolidation proposal is already law. Why is it even in the draft? As for amortization alternatives, the document offers no specific, alternative methods, and changing the amortization is just a euphemism for can-kicking — pushing pension contributions out to a later date.
On all the above, there’s no estimate of dollar impact on property taxes. None.
Finally, who drafted this thing? It reads like a model for our schools’ failure to teach expository writing. It wanders among different topics. Sections aren’t labeled. The index at the front has no page numbers. Recommendations from different subcommittees are sprinkled in with background material, leaving it unclear what, if anything, the task force as a whole is recommending. Yes, it’s just a draft, but come on.
A proper report would have started and ended with something like this: Illinois’ flight of population and tax base results primarily from its uncompetitive tax burden. Property taxes must be cut without shifting that burden elsewhere. Those cuts cannot be achieved without, among other things, (1) real pension reform, which requires a constitutional amendment to the state’s pension protection clause, and (2) an end to unfunded mandates imposed on local units of government, including collective bargaining mandates and “prevailing wage” rules.
And if lawmakers think the proposals for new revenue provides justification for the pending progressive tax increase, as Rep. Sosnowki says some intended, forget it. The $3.5 billion of new revenue it supposedly would raise has already been promised for other things several times over and will have no appreciable effect on property tax bills.
*Mark Glennon is founder of Wirepoints.