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Property Tax Freeze Threatens Illinoisans; Fails to Address Root Causes

Freezing local property taxes at 2015 levels — proposed by Governor Rauner and in the General Assembly — would jeopardize the quality of education in Illinois and threaten to make the state’s communities less safe, desirable places to live.

The better way to solve the problem of high property taxes in Illinois is to get at the root causes — not slap on arbitrary limits that fail to take into account real public needs.

What’s at Stake?

Freezing property taxes would be especially harmful to Illinois school children, given the gross inadequacy of state General State Aid support for K-12 education. Illinois consistently ranks at the bottom in terms of the state’s share of support for public schools. Without the support they need from the state, local school districts in Illinois have little choice but to rely heavily on property taxes to cover their expenses and keep up with the rising costs of goods and services like utilities.

And there is no sign of state support becoming anywhere near adequate. The increase Governor Rauner proposes for the coming budget year wouldn’t even be enough to end the state’s practice of shorting school districts what they are due under state funding formulas. Without much larger increases to state aid, sustained over time, a property tax freeze — particularly if it were indefinite as in several of the proposals — would likely mean teacher layoffs, fewer course offerings and extracurricular activities, and other barriers to academic excellence.

It’s not just students who would be hurt by a local property tax freeze. Municipalities would likely be forced to reduce such vital services as police and fire protection. Add to the proposed property tax freeze Governor Rauner’s call for a $634 million cut to revenue sharing with local governments, and the picture grows even worse.

Proponents of freezing property taxes seem to be playing the “democracy” card to paper over the problems their proposal would cause. They claim they are empowering Illinoisans by allowing them to override the freeze at the ballot box. But instead of forcing communities to go through the burdensome process of having an election to approve even routine increases in operating costs, we should trust communities to elect local officials who will represent them; we don’t need Springfield to put up barriers to providing local services.

Plus, many Illinois counties — including all the counties in metro Chicago — already limit property tax increases to the level of inflation. And, residents in counties that don’t have these limits in place can vote into the state system to enact such limits. In fact, nine counties have previously rejected property tax limits, because voters recognized the harm they can cause.

Lessons from Other States

We don’t have to look far to get a sense for how damaging property tax freezes can be. Many states have put limits on how much property taxes can increase, a policy less stringent than the freeze Illinois is considering, that still led to major service reductions. For example, after Massachusetts arbitrarily limited annual local property tax revenue increases to 2.5 percent, communities laid off teachers, fire fighters, and police. Fire stations, libraries, and recreation and senior centers also had to close their doors or reduce hours.

In 2012, New York State capped increases to annual levies at 2 percent or the rate of inflation. As a result, over 60 percent of towns and villages and 80 percent of cities and counties reported the cap was making it more difficult to provide services for their residents, according to a Cornell University survey. There is other evidence that, when state governments impose arbitrary limitations on the ability of local communities to raise the resources they need, communities have to cut back on investments to improve roads and bridges, parks, and schools that help drive future economic growth.

Address the Underlying Causes

Rather than choke funding for education and core local services that increase quality of life and improve economic prospects, Illinois should take the common-sense approach of reducing reliance on local property taxes. Sound steps in that direction include:

  • Increase state aid to localities for public schools and for such other vital public services as parks, sanitation, and public safety. Such increased aid, particularly for public schools, could significantly lessen upwards pressure on property taxes, while also providing low-property wealth communities with the resources they need to create economic opportunities for children and families.
  • End the ban on localities assessing income taxes. Other states with relatively low property taxes, such as Indiana, allow this form of taxation, which is more closely tied to residents’ ability to pay.
  • Enact structural reforms like reducing the number of municipalities and school districts in Illinois. Our state has nearly 7,000 units of local government, by far the highest in the nation. This causes costly, inefficient duplication of services, higher administrative costs, and reduced bargaining power with suppliers, insurance companies, and others who do business with public entities.

Another good policy used in many states is to give homeowners a state tax credit if their local property tax exceeds a certain share of their income. This helps those who need it most, while maintaining local governments’ ability to raise the resources they need for the services on which people rely.

If we want Illinois to be a competitive state, we need to invest in strong schools and other services that make our communities safe and attract and retain a skilled workforce. A property tax freeze will not get us there. What we need are comprehensive, long-lasting solutions.

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