Schools and taxes

by Mike Kroll

As Illinois lawmakers debate the coming fiscal year budget one key issue is school funding. While there is general agreement that the state presently contributes too little toward funding public schools and that a great disparity exists between available local funds across school districts attempts to rectify this situation through the state budget have failed to reach a critical consensus. The reason is quite simple, anyway you look at it properly funding the public schools requires money that the state doesn't have under the current state of fiscal distress and very few lawmakers want to raise taxes. Adding to the lawmakers' dilemma Governor Rod Blagojevich has steadfastly refused to consider any proposals to increase either the state income tax or sales taxes, offering instead additional “sin” taxes on gambling.

A small group of state lawmakers have been pushing a far-reaching proposal into the General Assembly that would not only increase funding of public schools but would simultaneously move a good portion of the tax burden from property taxes to the state income and corporate taxes. Because this bill has failed to win the support of House Speaker Michael Madigan or Senate President Emil Jones it has been stalled along with many other budgetary matters. After the Chicago Tribune did a comprehensive story on the potential impact on tax payers that included a worksheet the shouts of protest from taxpayers began to grow.

The Tribune study projected an average “20 percent increase on average in their combined property and state income tax bills” if House bill 750's proposals are adopted. A separate, simpler bill is also being discussed in the State Senate that would also increase the state income tax rate from the current three percent to five percent raising some $5.8 billion additional dollars that would go toward a combination of additional school funding and property tax relief. This Senate proposal has the support of Jones but Madigan has yet to give the plan his own thumb up or down.

School funding problems are hardly new in Illinois and plans to raise the state income tax rate to help fund schools date back to former Governor Jim Edgar unsuccessful attempt to do a much smaller increase in 1997. Even before Edgar's proposal an earlier promise to help fund Illinois' public schools accompanied the start of the Lottery, proceeds of which supposedly go toward schools. Unfortunately this was a smoke and mirrors play whereby state lawmakers simply reduced school funding from tax dollars by the amount of Lottery revenue generated. Since that time the financial condition of both the state treasury and school districts across the state have worsened and the disparity in funding between “richer” and “poorer” school districts has widened significantly.

The unmistakably fact is that the necessary additional school funding has become so large that politically tolerable tweaks can make little difference. For example, in 2004 Illinois Lottery sales per capita were a mere $135 ranking us 24th among the 41 states with a lottery. When prizes and administration expenses are subtracted from sales the real contribution of the lottery to education funding becomes relatively minor. Only 34 cents of each dollar spent on the lottery went toward schools contributing a mere 4.3 percent of total state education funding ($540 million) in 2003. To further diminish the value of such funding of schools one merely needs to note that Illinois Lottery sales show a downward trend.

While noone likes to pay taxes one might get the mistaken notion that Illinois's state and local tax burden is already comparatively high. The reality is that this state ranks 30th out of the fifty states and Washington, DC in state and local tax burden as a percent of income. New York tops the list at 12.9 percent while Illinois sits at 9.7 percent. Even if HB750 were enacted the state and local tax burden in Illinois would remain below ten percent given current estimates.

Property taxes are regularly derided as unfair by their critics and they have proved to be heavily impacted by changing economic conditions. They also favor the collar counties surrounding Chicago where assessed valuation of property is much higher than most downstate areas. These greater property values account for much of the disparity in public school funding but the complex school funding formula likewise seems to favor the suburban school districts. According to U.S. Census data Illinois ranks 12th in property taxes per capita with an average $1,278 in 2002. Compared to number one New Jersey's $1,907 Illinois' property taxes still appear significant; especially compared to Alabama's $331.

One area of taxation where Illinois really compares favorable is corporate income tax rate. With a maximum rate of 4.8 percent Illinois ranks 44th of the 50 states in corporate tax rate but four states have no corporate tax at all putting Illinois third lowest. Neighboring Iowa has the highest corporate tax rate at 12 percent and aside from Missouri all of our neighboring states have markedly higher rates. It is perhaps a testamount to the power of the state's business interests that little has been said about increasing corporate income taxes or reducing loopholes that allow most of this state's corporations to pay minimal taxes.

If local schools are to be properly funded across the state there is no doubt that additional taxes will be required and it will take more mere tweaking to solve the real problem. As citizens and politicians we can continue to decry higher taxes but we do so at the expense not only of our schools but of our children and grandchildren who are the products of those schools.