COMPTROLLER'S CORNER PROPERTY TAXES IN ILLINOIS By Loleta A. Didrickson, Comptroller, State of Illinois

If you look back at Illinois' state and local taxes 30 years ago, you will find that this state was much more reliant on property taxes than it is today. In 1957, property taxes in Illinois comprised 51.7% of total state and local taxes, while the national average was 44.6%. By 1993, as a result of many states imposing or increasing income and sales taxes, property taxes in the nation represented an average of 31.8%, while property taxes in Illinois were 38.4% of total state and local tax revenues. Although Illinois is not as reliant on property taxes as it once was, property taxes continue to present a significant component of the total taxation structure in Illinois.

Despite its unpopularity, the property tax is the major source of locally controlled revenue for local governments and school districts. In Illinois, this tax raised $11.4 billion in 1993. It provides more than half of all local revenue to more than 6,000 local governments and school districts.

As a funding source, Illinois' reliance on the property tax is considerable. Total adjusted estimated property value or Equalized Assessed Valuation (EAV) and the amount billed (extensions) grew substantially between 1989 and 1993. The total EAV for the state, in 1993 was $144.5 billion, up 35% from 1989. Total extensions increased to $11.7 billion, up 32% from 1988.

The drastic increase and growth of the property tax over the last 10 to 20 years is one of the primary reasons the public's frustration with the property tax continues to grow. The Illinois Economic and Fiscal Commission's 1990 report on property taxes statewide indicated the tax grew by 42% during the 1980s - 15.1% above the rate of inflation. The Department of Revenue noted that Illinois property taxes had grown twice as fast as the tax base. Moody's reported that extensions in the Chicago metropolitan region increased by 105%, and the Taxpayers Federation of Illinois reported a 113% increase for DuPage County during the '80s. Over the same period, the consumer price index grew by 41%.

Even though Illinois is considered a moderate tax state in terms of taxes paid per citizen, it is not true of the property tax. Per capita state tax receipts for Illinois ($1,317), for FY 93 were $119 below the nation average ($1,436). However, the US average for property taxes paid by state is 31.8% of its taxes from the property base.

In Illinois, schools and local governments are very dependent on the property tax. More than 90% of the local governments in Illinois are property tax supported. Of every $100 in taxes that go to fund government in Illinois, $27 comes from property taxes compared with about $18 from sales taxes and $16 from income taxes. Nationwide only $22 out of every $100 comes from property taxes.

The complexity of the Illinois property tax system is exacerbated by the fact that Illinois has more property tax supported districts than any other state. In 1994, there were 6,041 such districts. The number of districts by category were: counties (102), townships and road districts (1,427), road districts in commission counties (94); municipalities (1,289); schools, including community colleges (953); and special districts (2,176).

To make matters more difficult, taxing districts usually do not share boundaries. A school district may

August 1996 / Illinois Municipal Review / Page 15

include two or more municipalities and several townships. Most Illinois residents live in 7 to 9 different taxing districts.

The breakdown of contributors to the property tax are as follows: residential property tax 52.3%, commercial 29.8%, industrial 13.7%. The remainder is paid by farmers 3.6%, railroads 0.4% and minerals 0.1%.

Cairo has the highest effective tax rate, while Northbrook once again has the lowest rate, according to the Taxpayers' Federation of Illinois. Data from the Illinois Department of Revenue, as calculated by the Federation, shows a resident in Cairo would pay $3,790 on a home with $100,000 market value. At the same time, a resident in Northbrook would pay only $1,207 on a $100,000 market value. However, because property values in Northbrook are much higher than Cairo, homeowners in Northbrook generally have higher tax bills.

One reason that effective tax rates are much higher for residents in Cairo as well as many other downstate communities is that these areas are much more reliant on property taxes because of the lack of other types of revenue sources, such as sales taxes. Additionally, EAV in these downstate regions has not grown as dramatically, if at all, as in suburban areas.

As was previously mentioned, Illinois is a moderate tax state. Based on the major general taxes, like income and sales, it is a low tax state. When factored with a higher than average property tax level and higher than average federal tax bill (due to higher personal income levels) Illinois taxpayers still have only a moderate tax burden when compared to the rest of the country and a revenue structure unique to this state.

A comprehensive fiscal reform legislative package initiated by Comptroller Loleta Didrickson has been signed into law by Governor Jim Edgar. The legislation has sweeping impacts on state government budgeting, spending, revenue and debt collection practices. Many of the reforms had been frequently and unsuccessfully proposed in previous years.

The legislation reduces the lapse period from 3 months to 2, ending the practice of allowing fifteen months of state spending out of twelve months of revenue. The current policy has resulted in using the next fiscal year's revenue to pay for three months of the last year's bills. The new legislation cuts the lapse period by a third, and prohibits lapse period spending for new services provided after June 30. It also establishes for the first time a definition of the nature and purposes of reappropriated expenditure authority.

Another major focus of the legislation is management of debt collection activities. Under the new legislation's last call provisions, the Debt Collection Board would establish timetables and procedures for uncollected debt not subject to a repayment plan, including the final evaluation on which delinquent accounts would be assigned to private debt collection agencies.

"The Comptroller's Office is currently developing proposed rules and procedures to implement these provisions," Didrickson noted. "And while this is a step in the right direction, the key is to attack the debt in the first 90 days. The next step is to shorten the period of time before debts owed the state by its vendors and employees are assigned to the Comptroller's offset program."

Unpaid child support, income and sales taxes and student loans make up the largest amount of money owed to the state. At the end of calendar 1995, the total amount owed to the state stood at $5.87 billion. The percentage of older debt labeled "problematic" - past due and difficult to collect - had increased to 47%, or $2.74 billion.

"Aging is fine for wines, but not receivables," Didrickson said, pointing out that the state loses millions of dollars each day that debt more than 90 days old goes uncollected. These debts depreciate in collectibility at the rate of 1/2% each day after 90 days. Currently, state debt collection efforts are de-centralized, with each agency following its own internal processes for collection and writeoff of debt.

"At a time when the state is looking for more money to fund its critical needs, we cannot afford to let this money go uncollected," Didrickson said. "Coupled with the measures we've already taken, this new legislation will make it easier for the state to dog these deadbeats. Every dollar collected is cash to the bottom line."

The law takes effect January 1. 1997. •

Page 16 / Illinois Municipal Review / August 1996