6 ways Illinois lawmakers can ease the property tax pain
Illinoisans shoulder some of the highest property taxes in the country. This burden is key to understanding the state's outmigration problem. Despite the failure of lawmakers to reverse this crisis, there remain a number of sound reforms waiting for consideration.
For four years in a row, the Land of Lincoln has been shrinking.
This significant decline is driven by Illinois’ loss of residents to other states – the cost of decades of unaddressed policy failures. One of those failures has been the massive growth in property tax burdens. Between 2008-2015, average property tax bills grew at more than six times the rate of household incomes in Illinois. Consuming an ever-greater share of household budgets, these bills have too often taken the shape of second mortgage payments.
While the property tax squeeze makes the state less desirable for families looking to plant roots, many of those who remain in Illinois gaze desperately across the state border. The Illinois Policy Institute has heard from many of those across the state struggling to keep up with the pace of their property tax bills.
Fortunately, there are a number of sensible reforms lawmakers could bring to the table to reduce the cost of local government and bring about the property tax relief that taxpayers desperately need.
1) Immediate property tax freeze
The quickest way lawmakers can ease the property tax burden for Illinois homeowners is to implement an immediate freeze on property tax bills. As incomes grow over time, the share of household budgets eaten up by property tax bills will fall.
Future property tax hikes should rely on the approval of those who foot the bill. State lawmakers should introduce a measure that requires a majority vote by referenda before local taxing bodies can enact property tax increases.
2) Pension reform
Arguably the biggest contributing factor to property tax hikes in the Land of Lincoln is the cost of defined-benefit pensions for government workers. Growing debts incurred by the runaway cost of pensions have left the state and municipal governments constantly scrambling for new sources of revenue.
Lawmakers at the state and local level have demonstrated an inability to manage the cumbersome framework of defined-benefit pension plans, imperiling the retirement security of public sector employees while adding to the mountain of costs demanded of taxpayers.
Unfortunately, persistent property tax hikes to pay for legacy costs are more likely to erode a town’s tax base, worsening the problem. A serious solution would cut to the heart of the issue and abandon the defined-benefit pension system altogether.
A sound alternative to the defined-benefit system would look like a defined-contribution system in line with 401(k) plans. This would entail contributions from worker paychecks in addition to a percentage matched by local governments. Local governments need the ability to enroll new employees in 401(k)-style plans. By allowing 401(k)-style plans for future government workers at the local level, Illinois could provide retirement security for government workers while offering taxpayers needed relief.
3) Prevailing wage reform
While homeowners feel the pinch of rising property tax bills, the costs of government that drive up those taxes are often obscure. One hidden cost comes in the form of Illinois’ prevailing wage law.
Enacted in 1941, the Prevailing Wage Act regulates labor contracts for public works construction projects. The law sets requirements by which governing bodies set wages for contractors. These wages, which also include benefits and training, are inflated and do not reflect wages earned for identical work performed in the private sector.
In fact, Illinois’ prevailing wage rates are 37 percent higher than average market wage rates. This drives up the cost of public construction projects. But not only does the prevailing wage cost taxpayers, it kills job opportunities, too.
Repealing the Prevailing Wage Act would provide room for property tax relief while spurring jobs growth in Illinois’ lagging construction sector.
4) Collective bargaining reform
In stark contrast to the Land of Lincoln’s neighboring states, collective bargaining laws in Illinois enforce a power asymmetry in contract negotiations between taxpayers and government worker unions. Those powers drive up the cost of property tax bills.
In Illinois, there’s virtually no limit as to what government worker unions are allowed to heap onto the negotiating table. Further, demands for unaffordable wage and benefit increases can prolong negotiations for months at a time, imposing further costs on taxpayers.
And while all surrounding states place some form of limitation on government worker strikes, Illinois has instead elected to enshrine the practice in state law for most government workers. Thus, unions are empowered to deprive taxpayers of essential government services.
Springfield should follow Illinois’ neighbors’ lead and introduce reforms establishing fairness at the bargaining table – protecting Illinoisans from unsustainable growth in government spending that drives up property taxes.
5) School district consolidation
Understanding the severity of Illinoisans’ property tax burden would be impossible without taking note of the sheer number of government units swaddling the Prairie State. Illinois’ composition of municipal governments is 7,000 layers thick, more than any other state in the country.
School districts are especially reliant on property taxes, consuming nearly two-thirds of property tax revenue collected by local governments. But it’s clear that too much of that funding doesn’t reach the classroom. Illinois school districts’ spending on administration is the second-highest in the nation, according to the Metropolitan Planning Council, at $518 per student.
Luckily, there’s plenty of room for consolidation. Illinois has more than 850 school districts – the fifth most in the country – and nearly 25 percent of which only serve one school. Consolidation would reduce the duplicative administrative bodies and bloated compensation packages that deepen debts and grow property taxes while disadvantaging students.
6) Workers’ compensation reform
A system designed to aid injured workers, the Land of Lincoln’s workers’ compensation laws have more effectively wounded blue-collar industries. But whereas workers’ compensation costs imposed on private sector employers often send them across state lines, state and local governments in Illinois remain fixed in place, numb to the law’s bleeding of public funds.
Illinois taxpayers spend nearly $1 billion on workers’ compensation annually, when accounting for costs at the state and local level.
Despite marginal cost-saving changes made to the Illinois Workers’ Compensation Act in 2011, workers’ compensation funds remain a burden for local governments. Such were the findings of a report by the bipartisan Local Government Consolidation and Unfunded Mandates task force, established in 2015. Surveying 500 units of local government, the task force found that workers’ compensation stood out as one of the most concerning cost-drivers for local governments.
Illinois’ workers’ compensation system remains the most expensive in the Midwest. Reasonable reforms would help bring local governments closer to balancing their books while providing a path for taxpayer relief.
Policymakers should be alert to the factors behind Illinois’ worrying population exodus. If elected officials are serious about reversing this trend, and establishing a climate amenable to homeowners in Illinois, property tax relief is in urgent order. Reducing the costs prone to drive up property taxes – and drive out residents – is a good place to start.