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Reforming Education Funding

Written by John Gordon

After missing the first two installments of state payments to local school districts, the Illinois General Assembly has approved a new education funding mechanism in legislation that also includes a tax credit for scholarship donations, some school mandate relief, and several other measures.

Senate approval on Tuesday (with a vote of 38-13-4) followed a dramatic Monday evening vote (73-34-3) by the Illinois House on Senate Bill 1947. The House vote came after a failed first vote on the bill and a failed attempt to override Governor Bruce Rauner’s amendatory veto of Senate Bill 1. The bill still needs the Governor’s signature and he has pledged to sign it.

Once signed, schools will begin to receive the approximately $6.7 billion in state funding that is currently on hold. Senate Bill 1947 contains much of the same language of Senate Bill 1. A new evidence-based formula for school funding incorporates 27 elements considered essential to high-performing schools, such as reduced classroom sizes, updated technology and computers, advanced teacher training, and increased support for English-learning students. By using the availability and cost of these elements, the formula establishes a unique adequacy target for each school district. Those that are determined to be the furthest from their adequacy targets will receive the largest share of the new dollars appropriated for education. The bill also contains a hold-harmless provision that ensure no school district sees a decrease in the funding they received in the 2016-2017 school year. Chicago Public Schools receives pension assistance from SB 1947, as the state will pick up CPS’ normal pension costs (approximately $221 million) under the bill.

SB 1947 also includes a new measure providing $75 million in tax credits to individuals and businesses that donate to scholarship organizations that provide financial assistance to low and middle-income families who send their children to private school or an out-of-district public schools. Students whose guardians earn an income of up to 300% of the poverty level will be eligible to receive these scholarships. The tax credit is worth 75% of the amount donated and is capped at $1 million per donor for a given year. An independent organization will be tasked to assess the students who receive these scholarships in comparison to similar students in public schools to determine if the private institutions are effectively instructing these students. Any approved scholarship organization must prove that it is spending no less than 95% of its contributions to provide scholarships to eligible students. This program is set to expire in five years unless it is reapproved by the legislature and the Governor.

Senate Bill 1947 also includes measures regarding property taxes. It allows Chicago Public Schools to go beyond its current legal cap on its levy for teacher’s pensions. The current rate is 0.383 on taxable property within the district. The bill allows CPS to extend that rate up to 0.567 if it so chooses. The bill would also allow for certain school districts to lower their property taxes via ballot initiative. If a school district is at 110% of its adequacy target, then voters in the district may put an initiative on the ballot that lowers the school districts property tax levy by up to 10%, granted that at least 10% of registered voters within the district sign a petition asking to do so.

The bill also:

  • Provides a certain amount of mandate relief for school districts. Districts may choose to lower the physical education requirement from five days per week to three days per week if they so choose, while also allowing for greater flexibility for students who take part in athletic extracurricular activities. School districts may also choose to contract out driver’s education.
  • Allows for the expediting of requirement waivers. Waivers that need approval of the General Assembly will be sent to the four legislative leaders for consideration. If at least three of the four leaders want further consideration of a waiver request, then the request is sent to the full legislative body. If less than 3 of the leaders send a request of further consideration, then the State Board of Education may decide to accept, modify, or reject the request without action from the General Assembly.

Once signed, the legislation is effective immediately. It is important to remember that this formula is for distributing new state dollars and its predicated on increasing state education spending by at least $350 million per year for the next ten years. Some education advocates say that this amount may not be enough to properly fix the education funding system in Illinois, even with these latest improvements. It will be vital for the General Assembly to continue to increase education spending by the state, or the new funding model may fall short of its goal of increasing the percentage of education funding that is taken up by the state and promoting education equity and adequacy across Illinois.

 

SB 1- Leveling the Playing Field

Written by John Gordon

The current attempt to reform how Illinois funds school districts in the state is at a critical point. Both the Senate and the House have passed a bill that would allow new state dollars to flow to school districts in the most financial need, giving more kids opportunities for the quality education that they deserve and that is their constitutional right. Governor Rauner, while expressing support for much of what the bill proposes, declared his intent to veto the legislation. As of now, the bill remains in the Senate chamber as lawmakers and advocates attempt to persuade the Governor to sign the bill into law.

The Problem

As it currently stands, school districts in Illinois rely heavily on local taxes, largely property taxes, for funding. Roughly 67% of all school funding in Illinois comes from local taxes, while the state only provides approximately 25%.1 This has led to a very inequitable system. For every $1.00 spent on a non-low-income student, Illinois spends $0.81 for every low-income student.2 This system is also a main contributor to Illinois having among the highest property taxes in the nation.3

Senate Bill 1 aims to change this by setting a goal for increased levels of state funding for education and a system to distribute new dollars for education to those school districts in the most need of more funding. The overall goal of Senate Bill 1 is to increase funding for education by $350 million per year over the next ten years to bring the state closer to parity in terms of funding education. This funding would need to be appropriated every year by the General Assembly. The $350 million is a goal, not a set law.

How Does the New Formula Work?

One of the main provisions of Senate Bill 1 is the “Hold-Harmless” provision. This means that no school district in the state can receive less state funding than it received in the 2016-2017 school year. This is done by creating a “Base Funding Minimum Level” for each school district.

The bill also instructs the State Board of Education to establish unique “Adequacy Targets” for each school district in Illinois, based on figures that influence school spending and school needs. The adequacy targets take into account the Base Funding Minimum Level described above, the availability of local resources, and what the bill refers to as “Essential Elements” needed to ensure K-12 students in Illinois are able to graduate high school and attend college. These 27 elements have been identified by academic research. Some of the 27 elements include:

  • Up to date textbooks and learning materials
  • Up to date technology for classroom instruction
  • Increased funding for low-income and special education students
  • Increased support for students who are learning English
  • Limited classroom sizes

Where Will the Money Go?

The bill groups school districts based on how their local available income meets the established adequacy goal. The first group of districts (Tier 1) are those who are at less than 65% of their adequacy targets. The second level of school districts (Tier 2) are those who are between 65% and 90% of their adequacy targets. The third level (Tier 3) are districts between 91%-100% of their targets. The fourth level (Tier 4) are districts that are above 100% of their targets.

Per the State Board of Education, 77% of school districts in Illinois are in Tiers 1 and 2. In the bill, 99% of the new funding (the $350 million stated above) would be distributed among these school districts to increase their adequacy levels.

Property Tax Relief

Senate Bill 1 also establishes a property tax relief fund. This fund, which is also subject to appropriation, would allow school districts in high-tax, low-wealth areas of the state to receive relief in their property tax bills. If a district receives this relief grant from the state, it must reduce its levy in the following year by the dollar amount they received from the state. As stated earlier, this is subject to a separate appropriation from the General Assembly. The more the G.A. appropriates for this fund, the number of school districts that can receive this benefit will increase.

Chicago

Due to its sheer size, Chicago Public Schools (CPS) both receives and carries burdens that other school districts in Illinois do not. For example, CPS receives a block grant from the state of approximately $250 million that other districts do not receive.  However, CPS is responsible for the pensions of their unit’s teachers, while the state covers the pensions for teachers in every other school district.

The bill attempts to address both Chicago’s educational and pension needs in the bill. The block grant and CPS’ normal pension costs are added to the district’s Base Funding Minimum Level. This does indeed help Chicago with their pensions, but it comes at a cost. If these two factors were not included in CPS’ Base Funding Minimum Level, CPS would receive a larger per-pupil funding increase than they are with these two factors included.

It is important to remember that the Chicago Public School System educates roughly 20% of the state’s overall student population. Of all students in CPS, approximately 84% are low-income.4 Any attempt to reform the school funding formula in Illinois to raise the level of equity between wealthy and non-wealthy school districts will have some benefit for Chicago.

The Necessity of Proper Funding

All of the reforms in Senate Bill 1 are predicated on proper funding levels from the state. Again, the stated goal in Senate Bill 1 is to increase the level of state funding to school by $350 million per year for the next ten years. The bill does prepare for the possibility that the state will fall short of this in any given year by distributing whatever funding is appropriated more progressively to those districts furthest away from their adequacy targets. This would reduce the level of new funding to schools in Tiers 3 and 4 to practically zero. But the lower the amount of new funding from the state, the less effective the formula will be at reducing inequality. The reduced funding will also continue to place the burden of school financing on local tax dollars, which is the biggest drivers of the inequity among school districts in Illinois.

This makes the need for a full budget agreement this summer and a return to the normal year-to-year budget process all the more critical. If the state continues down its current path, a new funding formula will be lost among the instability and financial ruin.


1. Illinois State Board of Education 2015-2016 Report Card

2. The Education Trust

3.New York Times, March 10, 2017 “Highest and Lowest Property Tax Rates in the U.S.”

4.Illinois State Board of Education 2015-2016 Report Card, Chicago School District 299

Illinois Falling Short in Reducing Income Inequality

As another year’s tax season comes to a close, Illinois data continues to show that we must work harder to enact policies that reduce income inequality in our state.

 In Illinois, income inequality is high and has worsened over time.

Wage stagnation and tax policy are contributing to the increase in income inequality.

Nationwide over the last four decades, wages have grown for top earners, but not much at all for those at the bottom and in the middle.[3] Furthermore, in Illinois, top earners pay a lower share of taxes.

According to ITEP’s Tax Inequality Index, Illinois has the 5th most unfair state and local tax system in the country. This places an increased burden on the already strained budgets of low-income families. In 2015 in Illinois, families in the lowest income group paid the most state and local taxes as a share of their income (13.2%), roughly double the share that the highest income groups pay.[4]

Total state and local taxes paid as a share of income, 2015

ITEP Tax Graphic

 Source: Institute on Taxation and Economic Policy

Illinois needs new revenue to resolve the current budget stalemate and continue to provide important services to its residents. In looking at the state’s tax system, elected officials should consider the existing income inequality among its residents. Two ways Illinois can reduce the tax burden on working families are by increasing the state’s Earned Income Tax Credit (EITC) and establishing a state child tax credit.  These two measures will help put Illinois on the road towards a fairer tax system and improve the lives of thousands of Illinois residents.

Written by Anna Rowan


[1]Via the Center on Budget and Policy Priorities: EPI analysis of IRS data. Estelle Sommeiller, Mark Price, and Ellis Wazeter, “Income Inequality in the U.S. by state, metropolitan area, and county,” Economic Policy Institute, June 16, 2016

[2]KIDS COUNT Data Center

[3]How State Tax Policies Can Stop Increasing Inequality and Start Reducing It,” Center on Budget and Policy Priorities

[4]Who Pays?” A Distributional Analysis of the Tax Systems in All 50 States, 5th Edition,” Institute on Taxation and Economic Policy

Proposed Medicaid changes could mean end of services for thousands in Illinois.

Proposed changes to the federal Affordable Care Act (ACA) and Medicaid could result in the reduction or elimination of services for thousands of Illinois residents now covered by Medicaid.

Medicaid provides health coverage to low-income children and their families, pregnant women, persons who are disabled, and seniors.[1] Services covered by Medicaid can include payments for hospital and nursing home care and prescription drugs.[2]

The program, jointly funded by the state and federal government, currently covers 36 percent of Illinois children.[3] In July of 2013, Illinois was one of 23 (now 32) states that opted to expand its Medicaid program under the federal Affordable Care Act (ACA).[4] The ACA expanded eligibility for Medicaid to 138 percent of the poverty line, or, families of three making $26,951.[5]

At the beginning of this year, there were 3.1 million people enrolled in the state’s Medicaid program. Of that amount, approximately 649,000 enrolled under the Affordable Care Act. Illinois now has one-quarter of its population enrolled in the Medicaid program.[6]

While Congress has not yet voted on the proposed legislation, nationally, the Congressional Budget Office has calculated that the proposed changes to the ACA could mean a loss of medical coverage for 14 million people in 2018.[7] The Office estimates that both changes to the tax subsidies that allow citizens to buy coverage and to the Medicaid program could increase the number of uninsured from 14 million to 21 million in 2020, and to 24 million in 2026. It also provides yet another major budget issue for Illinois.[8]

When the ACA became law, the federal government paid 100% of the costs for each new Medicaid enrollee through 2016. The percentage dropped to 95% this year. It is scheduled to phase down to 90% by January 1, 2020. Due to the federal reimbursement for new enrollees, Illinois received more than $3 billion dollars in Fiscal Year 2017.  Overall, Illinois spent approximately $12.5 billion in general funds (and related funds) on Medicaid in Fiscal Year 2016.

The proposed bill would make two major changes to Medicaid starting in 2020, each of which likely would reduce coverage in Illinois unless the state chooses to raise the necessary revenue.

First, it would reduce the federal matching rate for new enrollees in Illinois’ Medicaid expansion from 90 percent to Illinois’ regular Medicaid matching rate, just above 51 percent.[9] That means Illinois would have to pay nearly five times as much as under current law for new enrollees. Moreover, because low-income adults move on and off Medicaid over time, CBO estimates that the higher cost would apply to more than two-thirds of expansion enrollees within just two years. [10]

Second, the bill would cap per-person federal Medicaid funding – not just for the expansion population, but also for children, pregnant women, seniors, and people with disabilities currently covered by Illinois Medicaid.[11] The federal government now matches state Medicaid spending with no dollar limit per enrollee, meaning that federal funding increases based on the actual cost of serving vulnerable populations. Under the House bill, the per-person caps would grow more slowly than projected per-enrollee spending, and so Illinois would face increasing cuts in federal funding over time.

The implications of the federal changes in Illinois would further complicate by the state’s ongoing budget crisis. The state has been operating without a complete budget for 21 months. It has a shortfall of billions of dollars just to meet 2015 service levels and has amassed a backlog of bills totaling more than $12.5 billion[12]. Delayed payments or actual cuts have already led providers to curtail vital human services.

During an Illinois House hearing on the subject, experts testified that the proposed federal Medicaid changes could mean a loss of up to $40 billion for Illinois over a ten-year period. Absent any action by the Illinois General Assembly and the Governor to address the revenue shortfall, vulnerable Illinois residents including low-income children and their families, persons with disabilities and seniors, could see coverage cut and discontinued.

Written by S. Mayumi Grigsby


[1] http://www.cbpp.org/research/health/policy-basics-introduction-to-medicaid

[2] http://www.cbpp.org/research/health/policy-basics-introduction-to-medicaid

[3] http://ccf.georgetown.edu/location/illinois/

[4] https://kaiserfamilyfoundation.files.wordpress.com/2013/07/8457-the-cost-of-not-expanding-medicaid4.pdf

[5] http://www.cbpp.org/research/health/policy-basics-introduction-to-medicaid

[6]https://www.illinois.gov/gov/budget/Documents/Budget%20Book/FY2018%20Budget%20Book/FY2018OperatingBudgetBook.pdf

[7] https://www.cbo.gov/publication/52486

[8] https://www.cbo.gov/publication/52486

[9] http://kff.org/medicaid/state-indicator/federal-matching-rate-and-multiplier/?currentTimeframe=1&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

[10] http://www.cbpp.org/research/health/house-republican-health-plan-shifts-370-billion-in-medicaid-costs-to-states

[11] http://www.cbpp.org/research/health/house-republican-health-plan-shifts-370-billion-in-medicaid-costs-to-states

[12] As of 3/14/17: https://ledger.illinoiscomptroller.gov/

Deadbeat Illinois

When the week ended, the State of Illinois had a backlog of bills totaling $12.2 billion dollars. That amount represents a backlog in vouchers of 140,000.[1]

The bill backlog problem is not new.  Going back more than six years, the state had a backlog of nearly $7.9 billion at the end of 2010. In the following four years, there were fluctuations in the amount as the state worked to whittle down its bills.

However, as the chart below from Illinois Comptroller Susana Mendoza’s office shows, it has been a steady uphill climb since the budget impasse began (July 2015).

historic trend bill backlog

Just who is waiting for payment by the state?  On the same day that the Governor presented his proposed budget to the legislature, his Office of Management and Budget (GOMB) also put out an update on outstanding bills[2].  Using its own data and that from the Comptroller, the composition of outstanding bills was as follows at the end of January (when the bill backlog was just $10.9 billion):

outstanding bills

As noted by GOMB, the totals “do not include all bills received by state agencies that have not been processed by the Comptroller due to lack of FY16 and FY17 appropriations”. In a number of cases, particularly regarding human services, the state signed contracts with providers for services during the fiscal year even though there was not an appropriation for the full year.

Each outstanding bill also accrues interest the longer it waits to be paid. For self-insured providers of the State Employees Group Insurance Program, the interest is 9% annually after 30 days of non-payment. Most other bills accrue interest at a rate of 12% annually after 90 days of non-payment[3]. Comptroller Mendoza has noted that if the state budget situation does not change by the end of the fiscal year, the state could owe up to $700 million interest on a bill backlog that would approach $15 billion[4]. One proposal in the legislature is to borrow money to pay a portion of the bills and incur a lower interest rate.

What Illinois needs is a balanced budget with sufficient revenue that allows it to provide the necessary services to its citizens and pay its bills.

 

[1] http://ledger.illinoiscomptroller.gov/fiscal-condition/#general-funds

[2] https://www.illinois.gov/gov/budget/Documents/Bill_Backlog_Presentation_for_January_FY17.pdf

[3] http://cgfa.ilga.gov/Upload/3YearBudgetForecastFY2017-FY2019.pdf

[4] http://thesouthern.com/news/local/govt-and-politics/interest-payments-add-to-illinois-budget-stalemate/article_9ea46b58-d9de-574a-83e8-652520d8a3c6.html

Statement from Voices for Illinois Children President Tasha Green Cruzat on Governor Rauner’s Proposed Budget

Governor Bruce Rauner today presented a proposed state budget for Fiscal Year 2018 that is built on a $7 billion gambit that includes cuts to human service programs.

While the budget contains increased funding for early childhood education, early intervention programs, and child care assistance, it also contains direct cuts to Department of Human Service grant programs including addiction prevention, after school youth programs, the emergency food program, the youth employment program, and teen parent services.

The Governor estimates these cuts along with changes to state employee health care benefits, the delivery of human services to adults age 60 and older, pension benefits, state procurement regulations, and the sale of the James R. Thompson Center in Chicago will reduce expenditures by $2.4 billion. The Governor proposed some of these measures last year.

The proposed budget also anticipates $4.6 billion in net revenue from a “compromise package” of legislation that could include spending cuts, a property tax freeze, workers’ compensation changes, additional pension and procurement changes, new revenue, and other measures. The Senate is currently attempting to work out a budget package.

If the compromise package and other proposals in the budget do not materialize, an auto-pilot “maintenance” budget (with some additional accounting measures built-in) would essentially cost the state $7.2 billion more than anticipated revenue for the fiscal year. This would only further endanger additional programs serving children and their families.

In the last nineteen months, our early childhood education providers have had to shut their doors in the faces of thousands of children. Our higher education system has been weakened because of the lack of tuition grants to low income students, programmatic cuts, and staff layoffs. Providers of mental health services, homeless youth services, addiction treatment and supportive housing have been forced to turn a blind eye to those most in need.

Is this the path the state will continue on? A path already paved with unpaid bills that sits at a staggering $11.9 billion as of today.

Illinois has operated for too long without a complete budget. I urge Governor Rauner and members of the General Assembly to do their jobs and present a balanced budget with sufficient revenue that puts Illinois children and families first.

 

More Money Needed For Pensions

Illinois residents should be ready to pay an additional $886 million in general funds in the next fiscal year (which starts July 1st) towards pensions for state employees, teachers, staff at state universities, judges, and legislators. That’s the total change from this fiscal year (FY17) after the state pension systems[1] set their contribution amounts and the State Auditor (a firm hired by the Auditor General) reviewed them. The state contributions to the pension systems will total $8.9 billion in FY18 with approximately $7.9 billion coming out of the general revenue funds.

The state operates under a 1995 law requiring the pension systems to have assets at 90% of their projected liabilities in FY45. Currently, the state’s pension systems collectively only have assets for 37.6% of their liabilities.

When the state adopted the 1995 law, it back-loaded the payments with contributions dramatically increasing in FY12. The systems also adopted lower projected rates of returns on existing pension system assets in recent years. The result of the reduced rates is an increase in the unfunded liabilities of the systems and therefore a need to increase the required contribution amounts. Other revised demographic changes, such as mortality rates, have impacted the projected liability and estimated contribution amounts.

 

Historical Change in Investment Rate Assumptions
System Prior to FY 10 FY10 FY12 FY14 FY16
TRS 8.50% 8.50% 8.00% 7.50% 7.00%
SERS 8.50% 7.75% 7.75% 7.25% 7.00%
SURS 8.50% 7.75% 7.75% 7.25% 7.25%
JRS 8.00% 7.00% 7.00% 7.00% 6.75%
GARS 8.00% 7.00% 7.00% 7.00% 6.75%
Note: The years associated with investment rate assumption changes reflect the actuarial valuation year and not the fiscal year in which the State contribution was calculated using the new rate.
Source:  Commission on Government Forecasting and Accountability

 

The total unfunded liability for the pension systems (to get to the required FY45 level) stands at just under $130 million dollars. To put the FY18 general revenue funds contribution amount of $7.9 billion into perspective, the total General Revenue Funds operating budget in FY15 (the last time there was a complete state budget) totaled just over $31 billion. So, the contribution represents more than 25% of the last complete state budget. The state could change the existing law and stretch out the time frame for meeting 90% of system liabilities. However, that likely would mean setting aside even more money for pension system contributions.

The increased pension payments only add more pressure to the state’s finances which are already stressed by the failure of lawmakers to pass a complete state budget and expenditures that exceed incoming revenue by billions of dollars (resulting in the state currently having a backlog of bills totaling more than $11 billion). The result has been cuts to vital human services and higher education institutions with more cuts likely absent any further action.

The only viable solution is for the state to bring in new revenue. Without new revenue, the state is looking at deeper and deeper cuts that will undermine Illinois’s economy and quality of life.

[1] Teachers’ Retirement System, State University Retirement System, State Employees Retirement System, General Assembly Retirement System, and Judicial Retirement System

Illinois Must End the Budget Crisis and Target Investments for Low-income Parents of Color and their Children

With only three scheduled veto session days remaining and money from the state’s “stopgap” budget set to run out at the end of December, Illinois lawmakers need to act urgently to restore critical programs that strengthen young parents and their children. This week, Voices for Illinois Children released a new report highlighting the damage the ongoing budget crisis is having on the economic security of Illinois’ children and families and makes recommendations to raise the necessary revenue to balance the budget and fully restore programs that help communities thrive.

The first five years of life are the most important period of growth for a child, but persistent poverty can harm young children and set back their likelihood of success in school and in their adult life. With one in 10 Illinois children under six living in deep poverty (50 percent of the poverty level, or roughly $12,125 for a family of four) and four in ten living below twice the poverty rate ($48,500 for a family of four), the urgency of investing in programs that counter the negative effects of poverty are paramount.

The current “stopgap” budget fails to provide adequate funding for many important programs that support young parents to pursue their education and provide their children with high-quality childcare and programs that support their well-being. As a result, several programs, including the Monetary Award Program which provides grants for low-income college students, Adult Basic Education and Literacy programs, and home visiting programs that support child well-being will not have any funding available at the start of 2017.

voices_parent_educ-budget
To fully support young parents in Illinois and create opportunities for their children and families, Illinois must:

• Restore eligibility for the Child Care Assistance Program to 185 percent of the poverty level and to parents pursuing a college degree full time.
• Restore state investments in higher education and MAP grants.
• Target funding to areas that improve educational outcomes for low-income parents of color.
• Restore Safe from the Start funding and increase investments in children’s mental health.

Tax them and they will…stay

When Illinois temporarily increased its state personal income tax rate in 2011, an interesting thing happened. The number of households making more than $500,000 went up.

Yet, don’t we keep hearing that when faced with higher taxes wealthy people flee a state?

Yes, but it seems it doesn’t actually happen.

Illinois Department of Revenue data shows that in tax year 2010 the number of Illinois taxpayers with an adjusted gross income of more than $500,000 was 39,437. In tax year 2014 (after the income tax rate went up to 5 percent from 3 percent), the number of filers in that bracket stood at 54,827. That’s a 39 percent increase.

The reality, across the nation, is that when faced with higher taxes millionaires are more likely than non-millionaires to stay. It’s a conclusion borne out in a recent study that looked at almost 70 million tax records of households across the U.S. from 1999 to 2011.

Among the most interesting findings is that some millionaires leave their homes to go to Florida, which has no income tax, but movement to other non-income tax states such as Texas is far less frequent. This suggests there may be non-tax reasons for moving to Florida. (Perhaps, it’s the weather?)

There are several reasons why millionaires appear less likely to move than people with lower income. First, nearly all millionaires are married (90% versus 58% of the general population). In general, single people are twice as likely to move as married people. Second, business owners tend to move less than non-business owners because their sales and profits are often tied to a particular local or regional customer base, and there are almost six times as many business owners among millionaires as in the general population.

So it really wasn’t as surprising as people might have thought when the Minneapolis Star Tribune published a recent article with the headline, “There’s no evidence that ultra-rich are fleeing Minnesota.” The newspaper found that the number of income tax returns with income over $1 million grew by 15.3 percent after a 2013 income tax increase.

In a 2014 paper, Michael Mazerov at the Center on Budget and Policy Priorities noted that of seven other economic studies published on state taxes and migration since 2000, six concluded taxes do not drive interstate moves.

Moreover, tax cuts might well foster departures to other states. As Mazerov notes, if deep cuts result in “significant deterioration in education, public safety, parks, roads, and other critical services and infrastructure, these states will render themselves less — not more desirable places to live and raise a family.”

An important lesson that Illinois can take from the latest study and Minnesota’s experience is that Illinois has substantial room to raise tax rates without risking that more than a negligible number of high-income households will pack their bags. The top 1% of taxpayers in Illinois — those making $500,000 or more a year — pay only 4.6 percent of their income in state and local taxes; in Minnesota, the top 1 percent pays 7.5 percent in state and local taxes.

Effective tax rate

Furthermore, while Illinois has been cutting a range of critical services after the 25-percent income tax cut in 2015 and the related failure to enact a state budget, Minnesota has gone in the opposite direction, raising taxes to increase public investment in schools, transportation and other areas that help communities thrive.

Posted to Blog, Budget, Revenue, Taxes