Gov. J.B. Pritzker hailed the accomplishments of state lawmakers for checking off the major items of his “think big” agenda this spring, saying their work delivered Illinois one of the most “consequential and transformative legislative sessions in history.”
But in approving a proposed constitutional change to state income taxation, a balanced budget, a massive $45 billion capital construction plan, a statewide expansion of gambling and legalized marijuana, Pritzker also knows what his next “think big” initiative will have to be: substantive property tax relief to Illinois homeowners.
With voter outrage growing over rapidly rising property taxes, a transformative plan to lower them could help sell Pritzker’s graduated-rate income tax amendment in November 2020.
This year, lawmakers were able to settle only on creating a task force to come up with ways to provide property tax relief with a mandate to deliver its final recommendations by the end of December.
Traditionally, assigning an issue to a legislative task force is akin to giving it a death sentence. But there is one significant difference this time.
During his campaign to unseat Republican Gov. Bruce Rauner, Pritzker vowed that if voters approved a constitutional amendment overhauling the state income tax he would use the proceeds to help alleviate property taxes. That burden exists largely because of low funding for public elementary and high schools.
Pritzker acknowledged the pairing of the issues last week in signing the $40 billion state budget bill and legislation enshrining the graduated tax rates if the amendment is ratified by 60 percent of those voting on the issue next year.
“The fair tax will also allow us to increase funding into education, which in turn then allows us to turn back to the local schools and ask them to see that the state is paying more into schools and that they, in turn, can lower or freeze property taxes,” Pritzker said, using his euphemism for the graduated-rate income tax system.
Pritzker has said an estimated $3.5 billion would be brought into the state coffers by moving from a constitutionally mandated flat-rate income tax to a graduated-rate tax.
But Pritzker already has largely earmarked the new tax revenue — which wouldn’t be available until 2021 if voters adopt the amendment — to fix structural imbalances in the government budget system. The cost of providing property tax relief that would be meaningful to voters would reach into the billions of dollars, requiring even more new revenue to the state or a serious realignment of his priorities.
Local property taxes paid 63 percent of the share of funding public grade and high schools in 2017, while state funding fell to 25 percent that year, state education statistics have shown, with federal funding making up the difference.
Nearly $18 billion of the $28.7 billion in property taxes levied statewide in 2015 was for grade and high schools, according to a 2017 Civic Federation study. Nearly 70 percent of suburban collar county property tax bills and 57.5 percent of Cook County real estate tax bills were devoted to schools.
The state is pumping more money into local schools as a result of a historic rewriting of the school aid formula that requires at least $350 million a year in new dollars. Lawmakers paid the first installment of $350 million last year and this year voted to put in $375 million for the fiscal year that starts July 1.
Also as part of the education funding formula rewrite, a total of $50 million in grants were set aside for qualifying school districts as an incentive to abate a portion of their property taxes.
But the results of the incentive also show the massive swap it would take to replace some of the local property taxes for schools with state funding.
The State Board of Education reported 373 of the more than 850 school districts in Illinois applied for tax abatement incentive grants seeking a total of more than $944 million. In the end, 27 districts split the $50 million in grants that lawmakers allocated and none got all of the money they originally requested.
Next year there’s another $50 million pot of state money for districts that didn’t receive a grant this school year as part of the state education budget.
In addition to the new graduated tax rates, Pritzker last week signed legislation that would provide a modest increase in the current income tax credit that homeowners receive — conditional upon voters ratifying the graduated tax amendment next year. But the credit increase, costing the state about $100 million, would be worth only about an extra $60 to the average homeowner.
An earlier attempt to try to sell the constitutional amendment with a property tax freeze on local school districts — with plenty of costly preconditions — passed the Senate but was never part of the final package.
That leaves the Pritzker-backed task force, approved by lawmakers with no dissent but plenty of cynicism. Republican lawmakers cited at least five property tax relief task forces in the past two decades, including last year, with no discernible results to lower real estate tax bills.
“I wish you Godspeed,” state Rep. Margo McDermed, R-Mokena, told freshman state Rep. Jonathan Carroll, D-Northbrook, who sponsored the task force. “I’ve been here five years and I have absolutely no confidence that anything whatsoever will change, other than the folks that like the status quo the way it is will destroy your hopes as they have everyone else’s. Good luck.”
Surprisingly, Carroll sought to pitch the task force as irrelevant to Pritzker’s push to change the income tax — even though the governor referred to the new panel as part of his “fair tax package” at a previous news conference. Carroll even cited Pritzker’s remarks at the news conference as proof that the governor was dedicated to the task force.
“Let me be clear, no matter what we do, this task force has nothing to do (with) whether the voters of Illinois support a progressive tax or not,” Carroll said when asked about it in a House panel hearing. “This is a separate entity of the progressive tax.”
Carroll had expressed opposition to putting Pritzker’s income tax change on the ballot until the governor signed off on his task force.
Taking it a step further, lawmakers this year also overwhelmingly approved the creation of the Illinois Property Tax Relief Fund in the new state budget, which currently contains $0.
Ostensibly, substantive future tax relief coming from the implemented recommendations of the property tax task force will result in a rebate to be found as a line item on homeowners’ real-estate tax bills, supporters said.
Escalating the rhetoric and the sales pitch for the income tax amendment, sponsoring Rep. Daniel Didech, D-Buffalo Grove, another freshman, vowed to his House colleagues that the property tax relief fund would create a mechanism that will “end one of the most regressive tax systems in the entire country.”
“It seems like a little smoke and mirrors,” Republican state Rep. Mark Batinick of Plainfield said before he voted for the relief fund.
Ultimately Carroll, the task force sponsor, conceded that changing the income tax structure to a graduated-rate system and the belief that the task force can achieve realistic proposals to reduce property tax bills will require a lot of trust from voters.
“(Pritzker) is asking the voters in 2020 to trust him on changing the income tax system in Illinois and he’s also telling them to trust him … that this (property task force) is a priority of his,” Carroll said. “So the voters in 2020 are going to have the chance to show us how much they do or do not trust the current governor.”