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Legislative Action At issue — local right to tax control WHAT NEXT? So far this year, the Illinois General Assembly has enacted an $875 million solution to the Chicago schools crisis, mandatory abatement of windfall property tax levies, and tax relief by doubling the homestead exemption from $1,500 to $3,000. But lawmakers stubbornly refused to enact permanent limits on property tax revenue despite the governor's attempt to force action via special session in mid-January. Will Thompson try another approach when he unveils his fiscal 1981 budget this month? As the new year began, downstaters were cracking jokes when a $400 million deficit threatened to close Chicago schools. And once Gov. James R. Thompson agreed to engineer a solution, the real villain in this big-city drama turned out to be the school board itself. The board had blithely ignored its financial problems, in effect, allowing the deficit to flourish, unchecked, for nearly a decade. (The city was unmasked as a willing, if unacknowledged accomplice. See "Chicago," page 30.) Downstaters gloated: Chicagoans covered up the deficit; let them clean it up. Yet downstaters worried that any state-financed solution for Chicago would eventually mean less state aid for the 1,000 districts downstate. But Thompson was emphatic: that wouldn't happen. At a summit meeting he called at the Governor's Mansion before the General Assembly convened, Chicago city, school, bank and union leaders agreed on a three-phase, $875 million, funding plan. Only 6 percent of the loan money would come from the state. The other 94 percent would come from Chicago. When the General Assembly convened January 9 and heard the governor's annual "State of the State" address, Thompson — as expected — called for speedy ratification of the Chicago school solution. As predicted, he insisted it was not a "bailout" for Chicago, a "sellout" for downstate, or a "copout" for taxpayers. And it was no surprise when Thompson went on to ask the General Assembly to enact abatement legislation which would allow local government to roll back property tax levies they had inflated last summer to offset the possible loss of revenue from the corporate personal property tax. Thompson cited an Illinois Department of Revenue survey which showed that only 4 percent of local governments had voluntarily rolled back their levies after revenue was assured for them from the corporate personal property tax replacement (upheld by the Illinois Supreme Court on November 21). But in surprisingly strong language that reminded reporters of the governor's days as a federal prosecutor, Thompson went on to accuse local government of willfully engineering a revenue windfall, pushing property taxes up an average of 13 percent statewide, "robbing" taxpayers of $225 million because of their own "uncontrollable appetites for cash." Amazingly, Thompson went still further, calling for immediate passage of a bill to permanently tie increases in property tax revenue to increases in personal income. His proposal would have limited this year's property tax increase to 10 percent over last year. Thompson said the limit would have eliminated local government's windfall and save taxpayers a tidy $225 million statewide. But, he warned, to be effective, the bill must be passed now — before the General Assembly adjourned in January or else the inflated levies would be intact when tax bills were figured in February. Legislators, especially downstate lawmakers, were stunned. They had come to Springfield expecting to ratify the $875 million solution for Chicago schools and go home to assure the 1,000 downstate school districts that not a penny of their state aid would be affected. What would they say to their constituents now? Thompson was proposing to cut all property tax revenue by an average of 3 percent this year. How could they justify the governor's position that local governments were taxeaters preying on taxpayers? Taxpayers versus taxeaters: an interesting concept. As a policy statement, it's the predictable viewpoint of a governor who stands, mid-term, on a record of fiscal restraint. If state government can nurture a year-end checkbook balance during double-digit inflation, local government can too. As a political strategy for Thompson, it's a move to pit taxpayers against local government, instead of the state for a change. State government had made progress by practicing Thompson-style fiscal restraint. Now it was time for local government to do the same. Only with an equal effort by local government to hold the line on spending could the state as a whole fulfill its idealized role as the Great Provider. Taxpayer vs. taxeater The taxpayer-versus-taxeater idea may be interesting, but it was ineffective: neither legislators nor local government would buy it. What inflation does to taxpayers, it does taxeaters; taxpayers are well aware of that. They pass tax referendums if inflation justifies the increase. They vote them down if it doesn't. When the issue is property taxes, lawmakers represent local, not state interests. Local government, in these days of state and federally mandated programs, remains the last bastion of local control. And to Illinois voters, who stubbornly cling to thousands of special tax districts, nothing is as sacred as local control. The General Assembly was confused as it listened to the rest of the governor's "State of the State" address which predicted that the fiscal 1981 budget, when unveiled in March, 22/March 1980/Illinois Issues would feature the same restraint that characterized the last three budgets. Ratification of the Chicago schools solution was one thing. But to call for permanent limits on property tax revenue at the same time? And to insist that such a bill be enacted within days and be effective immediately? Thompson had gone too far. If downstate schools had worried that the Chicago schools solution would strip away some of their state aid, they would be scared to death that permanent limits would pull the property tax right out from under them. If it came down to that, limiting property taxes, not only for the schools, but for all local governments, would put everyone in trouble. The schools would demand an entirely new state aid formula. Who knows? Local government might be demanding an aid formula of its own. Thompson has advocated spending and revenue limits consistently, but to insist that the legislature enact his proposal without the regular legislative process of hearings and debate or even printed copies of his proposal sounded more like a Moses speaking from the mountain than a governor addressing a legislative body. The $875 million solution for Chicago schools involves a three-phase funding plan. In the short term, $150 in school aid anticipation warrants covers the payroll and other immediate debts. The bulk of the money comes when the school board issues the warrants, which, like tax anticipation warrants, are backed by anticipated income. The state buys $50 million; the city, via its banks, $25 million; and the unions, $25 million. The other $50 million comes from $20 million the board has on hand and $30 million due in federal and state aid. In the interim, $225 million in tax anticipation warrants carries the board through the end of its fiscal year in April. The board issues the entire amount in warrants backed by anticipated property tax revenue. The city buys the entire $225 million block. To guarantee the city's investment, the plan calls for a switch in taxing power. The school board loses 50 cents of the tax rate for its operating funds, which drops from $2.11 to $1.61 per $100 assessed property valuation. The city gains that 50 cents in taxing power.
Ratification of the three-phase plan by the General Assembly came six days after the summit meeting and was simply a matter of amending vehicle House bills (H.B. 1264 and 1910) then in the Senate. The decisive votes came in the Senate, 44-11 and 44-9, respectively, sending the 15-amendment package to the House which concurred. Politically, Byrne had contended the crisis wasn't the city's fault, although it was widely known that her predecessor, the late Richard J. Daley had pushed up teacher salaries but not the property tax to pay for them (see "Chicago," page 30). Byrne knew it would cost her if she singlehandedly tried, but failed, to engineer a solution. So she dumped the problem in Thompson's lap, arguing it could easily become a state problem. She had a point. The Chicago school crisis could eventually drag down Illinois' credit rating. Thompson, she knew, had nothing to lose. Anything he did worked to his advantage. Clearly he agreed with Byrne in principle, if not practice. In his "State of the State" address he described the situation as a "fiscal catastrophe that could undermine the stability of a great city and, ultimately, of the [s]tate . . ." In any event, Thompson refused to tolerate interference by Democratic Treasurer Jerry Cosentino, who, with Byrne, announced first one solution then another. That Cosentino as state treasurer could not buy securities without Thompson's approval was verified by Attorney General William J. Scott, a point Thompson made again and again. Cosentino retaliated by suing Thompson for "unconstitutional infringement" of the treasurer's power. The political advantage of a Cosentino solution, however impotent, was as obvious as the play the press gave him. A single deal between Jane and Jerry could get back at the machine which once refused to slate him, and he could grab the glory as the only Democrat to challenge Thompson on the issue. (The ranking Democrat, Secretary of State Alan J. Dixon, who is favored to take the party's nomination for Adlai E. Stevenson's U.S. Senate seat, hasn't challenged Thompson on any issue.) Solution no resolution Despite the summit meeting and what amounted to a special legislative session, the state-engineered solution proved to be no immediate resolution of the crisis that still threatened to close Chicago schools. When the unions balked at buying aid anticipation warrants, the short-term plan snagged. Teachers, plagued by another payless payday January 18, again threatened to strike. And as the February deadline approached for cutting $60 million in programs and personnel, the school board discovered its initial plan to close 35 schools and drop 2,000 from the payroll would save only half that amount. Meanwhile the constitutionality of creating an appointive March 1980/Illinois Issues/23 Legislative Action oversight board with bonding power was challenged in court. Yet at the height of the Chicago crisis, Thompson set the stage for a different drama: limiting local government revenue from property taxes. When Thompson realized that only a special session would keep legislators in Springfield to consider property taxes, he called one. But the Democrats soon forced Thompson to admit that limiting property taxes now might undo all that had been done for Chicago. He grudgingly agreed to a compromise containing provisions which exempted Chicago for a year. In all, there were over a dozen exemptions which amounted to a series of loopholes so complicated the Democrats admitted it was impossible to determine their effect downstate. The hastily called special session, with its half-baked compromise, ground to a halt the same day it began (January 12). Thompson, angered that the special session strategy had not forced action, wasted no time in flying around the state to urge taxpayers to pressure legislators. The Democrats, meanwhile, aware of the political advantage in delivering any kind of tax relief before the primary election, caucused to consider the alternatives. There were plenty to choose from since they had bottled up all tax relief bills last year, except for sales tax relief. When the special session reconvened January 22, it took the Democrats only a day to dump Thompson's loopholed compromise and replace it with their own plan: abatement coupled with an increase in the homestead exemption doubling it from $1,500 to $3,000. Thompson's plan, an amendment to vehicle bill H.B. 2563 went down in a party line vote in the Senate. Republicans, equally aware of the mileage in tax relief this year, succeeded with an amendment to the Democrats' proposal to make abatement mandatory rather than optional. The Republicans failed, however, in their attempt to go the Democrats one better and triple the homestead exemption. The decisive vote on the final proposal came in the Senate, 46-6, sending the Democratic plan to the House which concurred 142-8 on abatement and 146-13 on the doubled homestead exemption. The real question remains: Why did Thompson go that far? Why did he force the property tax issue at the height of the Chicago schools crisis? The primary election was two months away, tax bills wouldn't reach taxpayers for six months, and the general election was 10 months away. Presumably his motives were political. But Thompson isn't running for office. Strategy or blunder? Delivering on tax relief would do much to enhance Thompson's record on fiscal restraint when he reaches the Republican National Convention in Detroit this summer (see "The state of the State," page 2). But because of Illinois' new "blind primary" law, Thompson is already a powerbroker of sorts. Since the courts ruled the law constitutional, the primary election will presumably put him at the head of the nation's only uncommitted delegation. Delivering on tax relief would spur Republican victories in the general election, and possibly ensure Republican control of the General Assembly, at least in the House. That would favor the Republicans in 1981 when legislative and congressional districts are redrawn for the decade. Then why alienate Republicans and Democrats alike by forcing action via yet another special session? Especially when the property tax issue forces legislators to put local interests above those of the state? Executive fiat does nothing if not unite Republicans and Democrats as a truly bipartisan legislative branch. Counting what amounted to a special session on Chicago schools, the property tax issue marks the fifth time in six months that Thompson has forced action via special session. Perhaps Thompson honestly wants to save taxpayers $225 million this year. But wouldn't tax abatement alone do it? Why push for local government spending limits in January and antagonize voters before the March primary? Why outrage local, governments and incense legislators when Thompson knew local government would run screaming to lawmakers as soon as he called the special session? Thompson could have honestly confused the issue. He rarely makes mistakes of this magnitude, but last year he did blunder badly on the sales tax issue, first insisting the state couldn't afford any relief and later admitting it could stand some relief. From all indications, local government did indeed levy what will generate windfall property tax revenues this year. But was local government's failure to abate those levies after the courts ruled the corporate personal property tax replacement constitutional really evidence of "uncontrollable appetites for cash?" Were taxpayers really being "robbed" of $225 million? Actually, the court's decision left local government only a few days to meet the legal deadline for all except municipalities to roll back the levies. The state presumably protects taxpayers by controlling tax rates. Do taxpayers truly want the state to control property tax revenues returned to local government? Rest assured the property tax issue will not go away. Regardless of the General Assembly's decision to reject Thompson's loopholed compromise and enact, instead, mandatory abatement and a doubled homestead exemption, all the tax limit alternatives will still be under consideration when legislators return after the primary election. If Thompson had asked the General Assembly to enact only abatement legislation, he could have paved the way for real property tax reform. But the issue seems no closer to resolution. Thompson's call for a special session, with its emphasis on an assumed emergency, did produce immediate action on abatement. But he saw the credit for the homestead exemption go to the Democrats. And he hardly gave property tax limits — or local government — a fair hearing. 24/March 1980/Illinois Issues |
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