Right-Sizing Property Taxes

Property taxes drive a lot of Illinois’ school funding inequity.

Some districts that have access to lots of property wealth can generate a great deal of money for their schools with a moderate increase in their tax rate. By contrast, districts with low-value property often have higher property tax rates yet are still unable to generate anything close to the revenue they need. For every two districts over-taxing their residents, there is at least one under-taxing district. That’s unfair to students and property taxpayers.

At the same time, right-sized property taxes can be an integral component of a school funding system and represent the most stable funding stream on which a school district can rely.

The key is to avoid across-the-board “solutions” that jeopardize the goals of the equity-focused Evidence-Based Formula (EBF).

EBF identifies a target property tax rate for every school district. Over 500 school districts in Illinois have higher rates than their target rate. These are the districts that deserve some sort of property tax relief. The remaining 300 school districts have tax rates below what the EBF identifies as their target. These are the districts that might need more flexibility to reach their goal rates.

The law creating evidence-based funding also created Property Tax Relief Grants, an effective way to integrate property tax relief into the formula and incentivize underfunded, over-taxed school districts to reduce their property tax rates. The first $50 million appropriated to EBF above $300 million goes to these tax relief grants; that is, if $350 million is appropriated, $300 million goes to EBF and $50 million goes to PTRGs. Any tax relief grant funding that a district receives is included in the base amount the State continues to allocate moving forward. This allows districts to continue to provide tax relief without hurting its access to school funding.

Unfortunately, developments in late 2020 may make the quest for property tax relief even more difficult. The Fair Tax proposal was rejected by voters, further solidifying Illinois’ constitutional flat income tax and making it more difficult to achieve property tax relief through increased state funding for education.

Despite a recent Property Tax Relief Task Force designed to bring together lawmakers to develop real solutions to Illinois’ over-reliance on property taxes, the global pandemic shortened the spring 2020 legislative session and also prevented any major action for property tax reform. The economic consequences of the pandemic will likely be reflected in the upcoming State budget. The Governor has stated that there will be cuts and they will be painful, a sad reality that rounds out an especially difficult 2020. Because every district is different and EBF lays out a road map for reasonable property tax rates, this discussion warrants a more nuanced approach than typical property tax-related soundbites usually allow. We hope that this discussion is revisited once the dust settles on the other more immediate crises.

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