By ALAN J. ORTBALS
Illinois State Senate President John Cullerton and Minority Leader Christine Radogno have announced a “Grand Bargain” on the two-year-old budget stalemate and they’re moving quickly to push it through the Senate. At this point, no one knows what Mike Madigan thinks about it so this may all go for naught. But, at least the sun is trying to poke its head through the gloomy Illinois fiscal sky.
A clump of bills, SB 1 through SB 13 have been introduced, which do things like:
• Increase the personal income tax rate from 3.75 percent to 4.95 and the corporate rate from 5.25 percent to 7. It’s estimated that that will generate $4.1 billion a year.
• Authorize the issuance of $7 billion of bonds to pay off overdue bills which in mid-January totaled $10.7 billion. They figure the loan would get the state back to paying vendors and service providers within 30 days of receiving their bills.
• Reform the pension system, a move that’s estimated to save up to $1 billion a year.
• Transfer Chicago Public Schools pension obligations to the state, making the CPS the same as the other districts in Illinois.
• Expand gambling.
• Reform workers’ compensation.
• Gradually raise the minimum wage.
• And, put a freeze on local property taxes.
Obviously, some of these things have nothing to do with the budget but that’s why it’s called the “Grand Bargain.” It makes concessions to both sides. The budget part of this package is supposed to right the fiscal ship of the state of Illinois, according to its authors. That’s a good thing, if they can pull it off but it’s not enough. We need the state to start paying its required share of education costs, something it’s a long way from doing.
Recently, the Illinois Association of Realtors released a report analyzing the comparative tax burdens between Illinois and Missouri. Lo and behold, when taking everything together — from income taxes to property taxes to sales taxes, etc. — it was pretty much of a tossup. This surprised many, primarily because each summer we are socked with some of the highest property tax bills in the nation.
If you couple the fact that local property taxes are sky high and yet the overall tax burden is middle of the pack, what does that tell you about the state portion? It’s very low. Our flat 3.75 percent personal income tax rate is one of the lowest in the nation. But governments have to supply services and perform functions and they depend on taxes to do it. If the money doesn’t come from one place, it has to come from another. In other words, our property taxes are so high because the state’s shirking its obligations.
When it comes to property taxes, school districts take the lion’s share — an average of 63 percent of your property tax dollar in Madison County. They are heavily dependent on local taxes and it’s getting worse. Illinois ranks 50th in the country in the portion of education funding covered by state-based taxes and first in reliance on local property taxes. And, because of the budget stalemate, the state’s not even paying the meager amount it’s supposed to. So, localities are trying to fill that void by upping local taxes.
For example, the Edwardsville School District is seeking to raise its tax rate by 55 cents and Madison County voters are being asked to adopt a 1 cent sales tax to fund school construction. Both measures increase the dependence of education on local funding.
Putting the onus of education funding on local backs creates problems. Some localities have stronger tax bases than others. They may have large industries or copious retail sales or a plethora of expensive homes. The lower the tax base, the higher the tax rate needs to be. Property tax rates in places like East St Louis or Cahokia will singe your eyeballs. The higher they go, the more people leave; the more people leave, the higher they go.
Freezing property tax rates isn’t going to fix this problem. In fact, it’ll make it worse. What’s necessary is for the state to step up and fulfill its obligations. The state constitution requires the state to cover at least 51 percent of the education bill but Illinois provides only about 25 percent. State funding needs to go up and local funding needs to come down.
So, while they are fixing the state’s budget mess, they need to make sure they are creating a structure that provides adequate school funding and gets the property tax monster off our backs.
Alan J. Ortbals is president and publisher of the Illinois Business Journal. He can be reached at firstname.lastname@example.org or (618) 659-1977.
By ALAN J. ORTBALS