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 La Grange: An increase in state funding for K-12 public
education could enable Illinois municipalities to limit the growth of local
property tax rates, boost the economy by up to $1.25 billion, and create as many
as 14,000 new jobs according to a new study by the Illinois Economic Policy
Institute (ILEPI) and the Project for Middle Class Renewal (PMCR) at the
University of Illinois Urbana-Champaign.
Read the Report: Assessing Potential Options to Provide
Property Tax Relief in Illinois
“Illinois ranks
50th nationally in state support for public schools, and it’s no secret that
municipalities are relying on property taxes to fill the gap,” said study
co-author and ILEPI Policy Director Frank Manzo IV. “However, property taxes are
regressive and reliably consume a larger share of income for working and
middle-class families than the state’s highest wage earners. This leaves
lawmakers with the choice between finding ways to equitably boost state funding
or dramatic reductions in the delivery of local public services.”
Illinois currently has the 7th-highest property tax collections per capita in
the United States, and the average Illinois taxpayer pays more in local property
taxes than state income taxes. A state task force is expected to issue a report
on the cause of increasing local tax burdens later this month, but four prior
efforts since 1982 have called out a lack of state funding for public education
and the expansion of local units of government as major contributing factors.
In its analysis, ILEPI and PMCR evaluate three possible solutions to providing
property tax relief— increasing the state’s share of funding for public schools,
consolidating townships, or drastically cutting municipal services. ILEPI and
PMCR researchers concluded that by adding $5 billion in state funds over four
years to the coffers of K-12 public schools, property tax levies could be held
constant. The additional funds could be fully financed by either Governor
Pritzker’s progressive income tax proposal, by subjecting retirement income over
$100,000 to state income tax (which 38 of the 41 states that have state income
tax systems already do), or by expanding the state’s sales tax to 81 services
that are currently taxed in Iowa but not in Illinois.
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Alternatively, researchers examined the possibility of reducing
property tax burdens by consolidating the state’s 1,431 townships,
which account for 24% of all local government units but receive just
2% of all property tax revenue. In doing so, they found that
township consolidation would reduce local administrative costs and
yield 1.2% in property tax relief— or about $61 per year for each
Illinois homeowner. However, they found that in terms of broader
impacts on the economy, such a change would be far more modest than
tax reform.
A final approach floated by lawmakers has been for state leaders to
mandate a 10% cut in local property taxes, which would force local
governments to slash funding for K-12 education, infrastructure, and
other public services by about $3 billion. Again, based on
industry-standard economic impact modeling, researchers found that
any economic stimulus from the cuts would be more than offset by
losses tied to investments in public services— ultimately costing
the state upwards of 25,000 jobs and shrinking its economy by $2.2
billion.
“The structural dependency our K-12 schools
currently have on property taxes drives regressive levies higher,”
concluded study co-author, PMCR Director, and University of Illinois
Professor Dr. Robert Bruno. “The data shows that only by increasing
the state’s share of education funding can we equitably reverse this
dynamic, while delivering both economic growth and real relief for
the working and middle-class families who are hurt most by the
current system.”
Researchers concluded that in addition to reducing the need to raise
property tax rates, the added investment generated by the tax reform
models would boost the state’s economy by between $850 million and
$1.25 billion and create between 10,000 and 14,000 new jobs.
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