Property tax reform this fall?

State Lawmakers wrangled over property tax relief for much of the session. Republicans and some Democrats argued that property tax reductions should be part of the spring income tax increase package. They got nowhere. After lawmakers went home, Chicago residents were hit with property of 50 to 70 percent that resulted from reassessment. Taxpayers cried foul.

On September 11 Senate President Philip J. Rock (D-8, Oak Park) unveiled the package of reforms that he said would be introduced in the fall "veto" session. Senate Renue Committee Chairman Dawn Clark Netsch (D-4, Chicago) said she will begin hearings this fall, but is unsure whether any portions will be acted upon. The Senate Democratic reforms included:

• Basing the local government tax levy on the last known equalized assessed value.
• Requiring Cook County to reassess every two years instead of every four and requiring local governments to accept tax payments in four installments instead of two.
• Expanding residential property tax breaks offered through the general and senior citizens homestead programs.
• Improving local assessment practices by expanding state support and education programs.

Rock argued that the income tax increase makes property tax reform possible. He said that schools and local governments that rely on the property tax had opposed changes that would have cost them money. "With the infusion this year of substantial new dollars to local governments and schools, the time is right for the General Assembly to undertake a serious reform in the property tax

Residential property taxes by county, 1987
County	per capita	per $1,000 personal income
DuPage Lake McHenry Kane Will Cook	$571 558 459 370 347 291	$29 28 28 24 24 18
Source: Senate Democrats.

system," Rock said.

Property taxes are a thorny issue in Illinois because they are high. Illinois is relatively more dependent than most other states on the property tax. Part of the reason is that Illinois has more units of local governments than any other state, each relying on the property tax. More than 5,000 local units — cities, counties, school districts, park districts, mosquito abatement districts, etc. — resist tinkering with their tax bases.

And within Illinois, property taxes pose very different burdens. The Taxpayers Federation of Illinois examined growth between 1982 and 1987 in equalized assessed value and property taxes extended (billed). For the entire state, assessments were up 17 percent and extensions 32 percent. But there were considerable variations within the state. DuPage County saw growth of 42 percent in assessments and 54 percent in extensions. Peoria County saw a 22 percent decline in assessment and a 7 percent drop in extensions.

The Taxpayers' Federation also looked at effective property tax rates for 58 cities. The effective tax rate is the percentage of fair cash value that is paid annually in taxes. The highest effective rate was in East St. Louis, where residents paid 4.381 percent of the value of a house. The lowest was in Northbrook, an affluent northern Cook County suburb, where residents paid 1.275 percent of a house's market value. Chicago was 57th on the list with an effective tax rate of 1.656 percent.

There are a couple of lessons from the Taxpayers' Federation studies. The first is that property taxes are not monolithic. Some areas of the state, particularly the metropolitan Chicago area, are growing and seeing healthy increases in their property tax base from both new building and the increasing value of existing property. Other areas are stagnant. The second lesson is that Chicago property taxes, though growing, are not high compared to those in other Illinois cities.

Rock's reform package could be divided into two parts. Levying property taxes on the last known assessment and reform of the multiplier represent significant administrative changes that few taxpayers will understand. The increases in various exemptions represent less significant changes that will be popular with homeowners and unpopular with business.

Basing the tax levy on the prior known equalized assessed value is the most significant. Currently schools and local governments must determine how much to levy in property taxes before they and taxpayers know the equalized assessed value of property. To protect themselves some of those units, particularly those imposing taxes at the maximum statutory rates, inflate their levies to assure collection of the maximum amount of property taxes. Basing levies on the last known assessed value, would allow a more precise and easily understood levy. Hardest hit by the change would be the high growth areas of the state whose schools and local governments would be deprived of a year's property tax growth when the change is first implemented. Statewide costs to schools and local governments are estimated at about $225 million.

The tax cycle and other administrative reforms would be significant, if dull. The increased exemption would be popular, if not significant. But basic questions remain. Rock touched upon one in an August interview: Who should pay? "At some point we're going to have to come to the threshold question, which is 'Do you want to pay more income tax or more property tax?' That's a perennial battle that comes up every year like the petunias."

Nothing that the Senate Democrats proposed was new; portions of the package have kicked around the Capitol for years. Illinois' diversity will make consensus difficult to reach. Suburban school districts that depend on rapid property tax base growth will resist moving to prior year's equalized assessed value. Schools and governments in no-growth areas will fight new exemptions that further erode their tax bases. Taxpayer disenchantment with the complex system requires the effort. □

October 1989 | Illinois Issues | 25