COMPTROLLER'S CORNER PROPERTY TAX CAPS

Some local governments are finding it more challenging to provide services under the limitations of a tax cap. Prior to 1991 when the Illinois General Assembly enacted the Property Tax Extension Limitation Act, local officials would typically raise property taxes when costs increased.

Since that time, the savings to suburban taxpayers (excluding Cook County) is estimated at $387 million. The caps were recently extended to Cook County property taxpayers, and although official numbers are not yet available, some have estimated the savings so far at $75 million. But the ultimate impact of the Act is difficult to assess. Some economists argue the economic slowdown of the early 1990s played a role in the savings, and others point to local governments that voluntarily taxed below the limits.

To date, the tax cap has had no across-the-board adverse effect on funding for municipal services, according to a survey done by the Northwest Municipal Conference. In the non-random survey of 15 villages representing each of the five collar counties, officials said the impact has been modest. The majority of surveyed local governments had maintained existing levels of each municipal service and had not reduced or eliminated programs.

Compared to the nation, Illinois, local governments are substantially more dependent on the property tax. Property taxes paid in 1994 (for tax year 1993) amounted to nearly $11.5 billion for over 6,000 local governments — a figure greater than the personal income tax, state sales tax and Illinois lottery proceeds combined.

The future impact of property tax limits is difficult to gauge. Will communities change the way they tax? Some municipalities that voluntarily taxed below the cap have begun to realize its cumulative effects. For example, if a municipality increases taxes by only 1% instead of 5% in a given year, the bypassed revenue can never be recovered. As a result, fewer localities that are subject to the cap are taxing below it.

In other states such as California and Massachusetts where tax caps have been implemented, some local governments were eventually placed in a survival mode instead of a progressive mode. Effects elsewhere include a cutback in maintenance and extension of public works, a reduction in amenities such as parks and libraries and a shifting of the costs of services (for example, garbage collection for a fee).

The future in Illinois includes debate on whether caps should be extended downstate. However, downstate units have different situations than those of suburban communities. Most have not experienced runaway property tax rate growth. Downstate school officials are more concerned with their lack of alternative revenue sources. •

December 1995 / Illinois Municipal Review / Page 7