New York will make 2% property tax cap permanent
While New York lawmakers have agreed to make the state’s 2% temporary limit on property tax levies permanent, Illinois should take reform farther by enacting a freeze on levies and giving local governments the ability to rein in their spending.
New York Gov. Andrew Cuomo and New York legislative leaders announced March 31 the state’s 2% property tax limitation would become permanent as part of a budget agreement, according to Business Insider.
In the lead-up to the budget agreement, Cuomo pushed a permanent property tax limitation, noting New York’s high property taxes, according to Bloomberg News. He admonished state lawmakers: “You can exercise fiscal discipline and restraint and survive.”
Illinois Gov. J.B. Pritzker should take note and work to curb the Prairie State’s property taxes – which are even higher than New York’s – and the unsustainable spending that drives them.
New York’s property tax limitation
In 2011, New York enacted a law that limited the annual growth in property tax levies for certain taxing districts to the lesser of 2% or inflation. While the law has helped in restraining overall property taxes, it doesn’t cover every taxing district in New York. It excludes tax increases to cover outlays such as certain pension payments and capital expenditures. There are also provisions for overriding the levy limits by the taxing districts’ governing boards or by school district voters.
The law was set to expire in 2020. The 2% growth limit will become permanent under the new agreement between Cuomo and lawmakers.
New York’s property taxes paid as a percentage of median home value – the effective property tax rate – is 1.7%, which is higher than the national median of 1.1%, according to 2017 data from the U.S. Census Bureau.
Illinois’ property tax limitation has not solved its high taxes
At 2.2%, Illinois’ median effective property tax rate is even higher than New York’s and twice the national rate. In fact, Illinois has the second-highest property taxes in the nation.
Like New York, Illinois has restrictions on property taxes. In 1991 Illinois enacted the Property Tax Extension Limitation Law, or PTELL, to protect homeowners against rising property taxes.
PTELL limits apply to non-home rule local governments in 39 of Illinois’ 102 counties, according to the Illinois Department of Revenue. PTELL does not apply to home rule taxing districts, which included more than 200 municipalities as of 2015. For the remaining governments subject to the law, PTELL limits the annual increase in the amount of property taxes to the lesser of 5% or the growth in inflation. And like New York’s levy limitation law, there are exceptions to Illinois’ PTELL. For example, Illinois taxing districts subject to the PTELL can still bill more when there is new construction or voters approve an increase. And tax increases to cover things such as certain bond and pension payments are exempt from the PTELL.
While property taxes might be even more burdensome without the PTELL, the law has not solved the problem of Illinois’ sky-high property taxes.
The amount Illinoisans paid in property taxes grew nearly 48% between 2008 and 2015, according to U.S. Census Bureau data. And property tax collections grew three times faster than Illinoisans’ incomes between 2000 and 2017, according to Wirepoints.
Pritzker needs a better plan for property tax relief
Gov. Pritzker has raised concerns about Illinois’ high property taxes and has said his graduated income tax plan would provide property tax relief. But the proposed relief, a 20% increase in the property tax credit on state income taxes, will not do much for overburdened homeowners.
Pritzker’s plan would allow homeowners a credit against their state income taxes worth 6% instead of the 5% they now receive for property taxes paid. With median property taxes of $4,692 in 2017 according to U.S. Census Bureau data, this amounts to an extra $47 credit for income taxpayers who pay median Illinois real estate taxes. The credit increase only applies to single filers with income up to $250,000 and joint filers with income up to $500,000.
And Pritzker’s proposed extra $237 million transfer to local governments through the Local Government Distributive Fund will not provide the necessary tools to make meaningful cuts to property taxes. If property taxes continue to rise at their post-recession average rates, they can be expected to increase by $200 million in 2021, which alone would nearly offset the new transfer payments. If property taxes resume their higher long-run rates of increase, they could climb by $860 million that year.
Local governments are hamstrung, as they can’t address some of the chief drivers of property taxes: government employee pension costs.
If Pritzker is serious about helping local governments deal with the costs that drive up property taxes, he should push for a constitutional amendment that would protect already-earned benefits and allow future, not-yet-accrued benefits to be adjusted. He could also champion measures to promote efficiency and shrink the number of local government units and school districts taking tax dollars from residents. And rather than restrict the growth in property tax levies as New York has done, Pritzker should advocate for a levy freeze to prevent the constant climb of property taxes and allow Illinoisans’ incomes to catch up to their tax bills.