{"id":1951,"date":"2019-08-27T09:55:18","date_gmt":"2019-08-27T14:55:18","guid":{"rendered":"https:\/\/illinoistax.org\/?p=1951"},"modified":"2019-08-27T10:00:28","modified_gmt":"2019-08-27T15:00:28","slug":"a-new-property-tax-relief-tax-force-same-old-problems","status":"publish","type":"post","link":"https:\/\/illinoistax.org\/?p=1951","title":{"rendered":"A New Property Tax Relief Tax Force: Same Old Problems – Mike Klemens"},"content":{"rendered":"

A New Property Tax Relief Tax Force: Same Old Problems<\/u><\/strong><\/h3>\n

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August 2019 (72.6)<\/strong><\/p>\n

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By Mike Klemens*<\/p>\n

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In the closing days of its spring 2019 session, the Illinois General Assembly created a Property Tax Relief Task Force to identify ways to create short and long-term relief for homeowners.\u00a0 Illinois has seen a number of these commissions, and much of the reaction to this one was \u201chere comes another report to sit on the shelf.\u201d\u00a0 Reviewing previous reports leads to a simple conclusion \u2013 property tax relief is hard to accomplish, and this is a particularly challenging time to try.<\/p>\n

National Context
\n<\/strong>Let\u2019s start by examining where Illinois stands in terms of property taxation, compared to other states.\u00a0 Chart 1<\/strong> compares Illinois property taxes as a percentage of the state\u2019s economic activity to other states.\u00a0 Since the late 1970s, Illinois\u2019 property tax burden has been above the national average and the gap between Illinois and the national average has widened since the 2008 real estate crash.\u00a0 Still, the graph shows Illinois tracking the national trend.<\/p>\n

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One reason for Illinois\u2019 above average property taxes is apparent in Chart 2<\/strong>, the relative shares of Illinois state and local tax collections. Of the total taxes collected by Illinois state and local governments, 37.5% was property tax.\u00a0 The national average was 31.5%, and although 10 states were higher than Illinois, that included states with no income tax \u2013 Alaska, New Hampshire, Texas and Wyoming \u2013 and two \u2013 New Hampshire and Montana \u2013 with no sales tax.<\/p>\n

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In 2016 Illinois\u2019 \u201croller coaster\u201d income tax rates were at a low point.\u00a0 Had the current income tax rates been in effect, property taxes would have accounted for 34.1% of state and local government taxes, still above average but with only 15 states higher than Illinois.\u00a0 Because we are looking at relative shares, that improved standing doesn\u2019t mean property owners saw any relief, just that they are paying more non-property taxes.\u00a0 If voters were to approve the proposed graduated income tax, the property tax share of Illinois\u2019 tax burden would fall further.<\/p>\n

What\u2019s Happening in Illinois Today?
\n<\/strong>After losing 23% of its value during the real estate crash between 2009 and 2013, the statewide property tax base is again growing, though total statewide taxable value is still well below its 2009 peak.\u00a0 Even as values were falling, property taxes paid were increasing, but modestly.\u00a0 For the latest three years for which data is available \u2013 taxes paid in 2016-2018 \u2013 the annual growth<\/em> in statewide property taxes billed has exceeded $1 billion annually \u2013 returning to pre-crash levels.\u00a0 The result: property values are still below their peak, but tax bills are higher than before, and increasing.<\/p>\n

Chicago has seen significant property tax increases recently, to cover pension costs.\u00a0 In most Chicago neighborhoods, the average homeowner has seen property taxes increase 60% over the last four years (taxes paid in 2016 to 2019).<\/p>\n

Previous Illinois Task Forces<\/strong><\/p>\n

Furman Commission \u2013 1982
\n<\/u>There has been no shortage of studies that sought to find ways to provide property tax reform\/relief.\u00a0 In 1982 Governor James R. Thompson created the Tax Reform Commission to examine the state\u2019s overall tax structure.\u00a0 It was commonly known as the Furman Commission, named for its chairman James Furman, executive vice-president of the MacArthur Foundation.\u00a0 In the property tax world, it recommended:<\/p>\n

    \n
  • full valuation of property,<\/li>\n
  • installment payments,<\/li>\n
  • sunsetting of exemptions, and<\/li>\n
  • reformed school financing to infuse more state revenues into school funding.<\/li>\n<\/ul>\n

    None of its property tax recommendations were immediately implemented.<\/p>\n

    Ikenberry Commission – 1996
    \n<\/u>In 1996, Gov. Jim Edgar appointed the Governor\u2019s Commission on Education Funding, better known as the Ikenberry Commission, after its chairman Stanley O. Ikenberry.\u00a0 The centerpiece of that effort was the replacement of local property tax revenues with state income tax funds.\u00a0 The legislation that came out of that commission\u2019s work stalled, at least in part when lawmakers recognized that for some residents the income tax increases would exceed the property tax savings.\u00a0 See \u201cReplacing School Property Taxes: A Bigger Challenge Today,\u201d Tax Facts<\/em>, February 2019.<\/p>\n

    Bramlet Commission – 1998
    \n<\/u>Two years after the Ikenberry Commission-inspired legislation failed, Gov. Edgar tried again and appointed the Gov.\u2019s Commission on Property Tax Reform, called the Bramlet Commission after its chair, TFI President Tim Bramlet.\u00a0 The commission concluded that \u201cthe charge of developing a simple \u2018tax swap\u2019 proposal that is fair and equitable to all taxpayers is not possible until certain state and local tax policy issues are addressed.\u201d<\/p>\n

    The Bramlet Commission held to the Ikenberry Commission\u2019s principles that property tax relief should be noticeable to property owners and pegged the number at $2 to $2.5 billion.\u00a0 (An equivalent number today would be $5 to $6 billion.)\u00a0 Perhaps learning from their predecessors, they wrestled more extensively with the practical implications of the \u201cswap\u201d than did the Furman or Ikenberry commissions and could not find a solution that did not create both \u201cwinners\u201d and \u201closers.\u201d<\/p>\n

    Among the tax policy issues impeding a tax swap that they identified were:<\/p>\n

      \n
    • A property tax base, exacerbated by the Cook County classification system, where businesses pay a higher percentage of property taxes than do homeowners, meaning a straight income-for-property tax swap would benefit businesses to the detriment of individuals.<\/li>\n
    • Concern that over time the relief granted to property owners would be eaten up by increases in property taxes.<\/li>\n
    • Geographic imbalances in property tax reliance would create winners and losers.<\/li>\n
    • Proliferation of local governments that makes it difficult to control local government spending.<\/li>\n
    • Reduced public pressure for reform. \u201cThe great political pressure for property tax reductions once felt in Illinois\u2019 atmosphere has dissipated over the last few years.\u201d\u00a0 Note: It\u2019s back.<\/li>\n<\/ul>\n

      Link Task Force – 2009
      \n<\/u>One of the most recent efforts was the 2009 Property Tax Reform and Relief Task Force, created by the General Assembly in 2007 and chaired by Sen. Terry Link, and charged to \u201cconduct a study of the property tax system in Illinois and to investigate methods of reducing the reliance on property\u00a0 taxes…\u201d\u00a0 That report began with a section entitled \u201cBack to the Future,\u201d that went well beyond pointing out the numerous studies that had not been implemented.\u00a0 Quoting from a paper entitled \u201cA Brief History of the Property Tax\u201d presented in 2004 it noted, \u201ccitizens complained that real and personal property taxes were too high and demanded that the government lower expenditures.\u00a0 The tax assessment system was also perceived as biased and inefficient compared to the earlier standards set by Aristedes.\u201d\u00a0 Although the message may sound like contemporary Illinois, the citizens were Athenians paying property tax in Greece, in 500 B.C.<\/p>\n

      The recommendations in the 2009 Task Force Report included:<\/p>\n

        \n
      • Correcting overreliance on local property taxes by rebalancing revenues raised by property, income and sales taxes.<\/li>\n
      • Consolidation of local government services.<\/li>\n
      • Enactment of a more robust circuit breaker program that would cover property taxes that exceeded a certain percentage of household income. They suggested that the current homestead exemptions, property tax credit on the income tax, and senior citizen assessment freeze homestead exemption programs could be subsumed into the circuit breaker, and<\/li>\n
      • Increasing the professionalization of individuals involved in valuing property for tax purposes.<\/li>\n<\/ul>\n

        Prospects for 2019 Task Force
        \n<\/strong>Unavailable to the new commission is the most common element of the previous tax reform\/relief studies \u2013 the recommendation to replace local property taxes with state revenues, primarily the income tax.\u00a0 That was an easy proposal to make \u2013 though clearly not an easy one to accomplish \u2013 when Illinois income taxes were significantly below national averages.\u00a0 With the 2017 rate increases Illinois income taxes are now above average, and the projected increases associated with the graduated income tax proposal will, if passed, raise Illinois even farther in most rankings.\u00a0 (While there are some who believe the $3.2 billion in new income tax receipts should be used to fund property tax relief, there are many other proposed uses of that money.)<\/p>\n

        Still around is one of the biggest problems that previous study groups have confronted: geographic differences in property values across Illinois, and particularly the dual tax systems that classifies property in Cook County but nowhere else in Illinois.\u00a0 Classification has historically benefited Chicago homeowners, the taxpayers who are now seeing some of the biggest property tax increases.<\/p>\n

        The pressure for property tax relief will push the task force to find ways to do so.\u00a0 One discussed\u00a0 proposal is a freeze for property taxes, which are growing state-wide by just over $1 billion (3.5 to 4 percent) annually. A one-year freeze would cost $1 billion, but a more noticeable two-year freeze would cost $3 billion, and a three-year freeze would cost $6 billion.\u00a0 That\u2019s a lot of replacement revenues or local government spending cuts.\u00a0 And freezes presumably thaw.<\/p>\n

        Homestead Exemptions\u2014tempting, but not actually helpful
        \n<\/u>Another popular program likely to be considered are increased homestead exemptions, which have the advantage of generally not costing the local government anything.\u00a0 That\u2019s because they don\u2019t cut taxes; they just shift the burden from homesteads onto non-homestead properties.<\/p>\n

        Homestead exemptions \u2013 reductions in the amount of taxable value taken before the tax rate is applied \u2013 have proliferated in Illinois, and today there are ten separate homestead exemptions.\u00a0 The largest are: the General Homestead Exemption, a $10,000 EAV reduction in Cook and $6,000 in other counties; the Senior Citizen Homestead Exemption, an $8,000 reduction in Cook County and $5,000 elsewhere; and the Senior Citizen Assessment Freeze Homestead Exemption.\u00a0 Homestead exemptions accounted for 5% of gross Cook County EAV in 1999, and grew to 9.25% by 2017.\u00a0 A 2010 report by the Civic Federation titled \u201cRecommendations for Reform of the Cook County Property Tax System\u201d stated that exemptions were undermining the tie between property value and property tax, and that it was time to curtail them and move toward a \u201ctruly ad valorem tax.\u201d<\/p>\n

        For more detailed examinations of how homestead exemptions shift tax burden and do not cut taxes see, \u201cExamining the Effects of Increased Homestead Exemptions,\u201d Tax Facts<\/em>, April 2017 and \u201cHomestead Exemptions: Shifting Burdens, Not Cutting Taxes, Tax Facts<\/em>, September\/October 2015.\u00a0 As Nathan Anderson and Therese McGuire wrote of exemptions and credits in a working paper for the Lincoln Institute of Land Policy, \u201cTax relief to some is not tax relief to all: tax relief to some is often tax increases for some others.\u201d<\/p>\n

        Circuit Breakers\u2014targeted relief, but costly
        \n<\/u>Given the high cost of property tax relief and other demands for limited state resources, the 2009 Link Task Force\u2019s recommendation to expand the Circuit Breaker program may be an appealing, but still costly, option.\u00a0 Circuit breakers are programs that kick in and provide benefits when property taxes exceed a certain percentage of income.\u00a0\u00a0 At the time of the task force report, the Illinois Circuit Breaker was providing $47 million per year in property tax relief grants to low income homeowners and renters.\u00a0 Two years later, on July 1, 2012, the program was terminated for lack of funding.<\/p>\n

        The Task Force found that the then-existing Circuit Breaker offered the most effective program to deal with high property taxes for households with low income:\u00a0 \u201cAn expanded program could target more assistance to those households where the tax burden (as measured against household income) is greatest and, as a grant program, would not shift the local tax burden to non-residential property.\u201d\u00a0 The report\u00a0 also suggested the Circuit Breaker be in the form of a voucher to pay property taxes so that recipients experienced relief from their property tax bills.<\/p>\n

        The task force had the Department of Revenue run simulations using income tax return data where property taxes exceeded either 5 or 6 percent of income and with grants capped at various amounts between $750 and $1,500.\u00a0 The costs were between $1 and $2 billion, well in excess of the then-current program that was limited to seniors and disabled persons with very low incomes.\u00a0 To pay for the program the Task Force suggested adjustments to non-means tested programs like the property tax credit on the income tax, homestead exemptions, and the Senior Citizens Assessment Freeze.<\/p>\n

        A year later the Civic Federation also recommended that homeowners\u2019 property tax relief, if desired, be provided through an expanded, means-tested, state level circuit breaker program. Their report saw the circuit breaker as an effective way of targeting property tax relief to the most needy.\u00a0 They suggested funding it by eliminating the state\u2019s income tax credit for residential property taxes.<\/p>\n

        Support for circuit breakers also comes from Institute on Taxation and Economic Policy which, in a 2018 policy briefing, cited the benefits of targeting relief to low-income taxpayers and introducing an \u201cability to pay\u201d concept to the property tax. \u00a0Its downsides were the separate application process and the need for an outreach program.<\/p>\n

        A final advocate for circuit breaker programs is the Lincoln Institute of Land Policy, in a 2009 report entitled \u201cProperty Tax Circuit Breakers: Fair and Cost-Effective Relief for Taxpayers.\u201d\u00a0 The report noted that many tax relief efforts invoke cases of problems for low-income homeowners and then enact programs that offer tax relief to all.\u00a0 The report estimates that a well-designed system would cost about 6 percent of property tax revenues, roughly $2 billion in Illinois\u2019 case.<\/p>\n

        Procedural Improvements
        \n<\/u>Given the high cost of any meaningful tax reduction options, the 2019 task force may find its most productive area of inquiry, and opportunity for change, to be improving the property tax process.\u00a0 For example, would taxpayers (and taxing jurisdictions) benefit from paying property taxes in more than just two installments a year?\u00a0 Are there more efficient ways to assess, levy, and collect this tax?<\/p>\n

        The backlog at the state Property Tax Appeal Board is notorious:\u00a0 the Civic Federation put the backlog of cases at 62,077 at the end of State fiscal year 2018.\u00a0 See \u201cPTAB: Struggling to Remain Afloat in a Sea of Appeals,\u201d Tax Facts<\/em>, September 2018.\u00a0 Giving the Board resources to eliminate its backlog of appeals, or changing its responsibilities to reduce its workload, would make the property tax system work better.\u00a0 In June the Civic Federation released a study that found PTAB was underfunded, understaffed, and needlessly tied to procedures and rules that slowed its process.\u00a0 Proposed rule changes to streamline PTAB processes were developed by an ad hoc committee of the Illinois State Bar Association in 2013 and supported by the Civic Federation, Taxpayers\u2019 Federation of Illinois and the Illinois Chamber of Commerce. While PTAB has made some progress, a number of recommendations still remain unadopted.<\/p>\n

        Conclusion
        \n<\/strong>The members of the new Property Tax Relief Task Force face the same challenges as their predecessors.\u00a0 Chief among them are Illinois\u2019 high reliance on property taxes to fund schools and local governments and the resulting high cost of providing across-the-board tax relief.<\/p>\n

        But they have some new challenges:<\/p>\n