Illinois’ New Budget does not stop the Governor’s Call for a Property Tax Freeze
By Steven Kandelman
July 12, 2017
After two years of not having a budget or 736 days without a budget, the Illinois Senate and House voted to override Governor Rauner’s veto and enact a budget for 2017 on Thursday, July 6, 2017. The budget plan is expected to generate an estimated $5 billion in new revenue mostly from a 32% increase in the personal income tax rate (retroactive to July 1, 2017) from 3.75 percent to 4.95 percent and increases in the corporate income tax rate from 5.25 percent to 7 percent. The 4.95 percent personal income tax rate is roughly the same level as it was under former Governor Pat Quinn. Governor Rauner’s continued opposition in his public response has been to focus on the tax increase and not focus on the state’s backlog of bills which is now around $15 billion which is almost triple the amount when Gov. Rauner took office in January, 2015.
Credit agencies are still seriously considering downgrading the State of Illinois’ bond status to junk status even after the passing of the 2017 Illinois Budget. On July 12, 2017, S&P Global affirmed the state’s current BBB- rating, but Moody’s still has left the state on credit watch and indicated that junk level is a real possibility. Even with huge outstanding bills and pension liabilities, the Governor continues to push for property tax relief in the form of a statewide property tax freeze. [1] The problem with the proposed property tax freeze is that municipalities have been unable to meet expenses since the 2008 recession and adding a property tax freeze would further reduce a municipality’s revenue and threaten the ability to provide basic public services such as school funding, police and fire protection, garbage pickup, road maintenance and snow removal. Also, construction projects are often paid for with bonds which become more costly if Illinois’ credit rating is downgraded to “junk” status. Hinsdale High School District 86 Superintendent Bruce Law is listening to Gov. Rauner’s continued call for a four-year property tax freeze. He has stated that “Freezing property taxes for four years was … considered not because it was needed to make the budget work, but it was constructed as a way to make the politics work.” Hinsdale High School Dist. 86 has analyzed the effect of a four-year property tax freeze by comparing the current state of the district’s funding versus the district’s funding incorporating the freeze. “If the district is allowed to continue to levy property taxes as it usually does, in five years, at the end of 2021-22 school year, the balance would be roughly $18.8 million. But if the property taxes the school district is allowed to collect were frozen at current levels, district officials project the fund balance would fall to $2.1 million by the end of the 2021-22 school year, if other circumstances remain constant.” District officials would not let the balances fall to that level and they would have to reduce expenses substantially which would reduce the quality of education and educational programming.[2]
A property tax freeze would also cause interest rates on these needed bonds to increase. In addition, a tax freeze would jeopardize the existence of public schools because no other state relies more on property taxes to fund public education than Illinois. Even though cities and villages receive only approximately 10 percent of the overall property tax bill, that money is frequently a city’s largest source of revenue, particularly, in cities that don’t have large retail or manufacturing bases which could contribute substantial tax revenue. The popular refrain of proponents of a property tax freeze is that municipalities can always pass a referendum to raise more revenue. However, this is not likely, feasible or a sound financial planning strategy to rely on. Therefore, a property tax freeze might be a good political slogan on the campaign trail, but in light of Illinois’ poor financial state, it would have a detrimental effect through the loss of essential services due to diminished revenue options available for cities to pay for the everyday needs of Illinois citizens. [3]
[1] “Illinois Still Faces Financial Issues Despite Having Budget” by Kim Geiger and Monique Garcia, Chicago Tribune, July 9, 2017, pp. 1, 16.
[2] “Hinsdale District 86 Superintendent Warns Property Tax Freeze Would Bring Cuts” by Kimberly Fornek, Chicago Tribune, July 12, 2017.
[3] “Here’s How The New Budget Fails Illinois”, by Governor Rauner, Crain’s Chicago Business, July 10, 2017, p. 22
