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“We cannot solve our problems with the same thinking we used when we created them.” – Albert Einstein

Education Part V: Property Taxes, the Well Has Gone Dry

“The State has the primary responsibility for financing the system of public education.”
Constitution of Illinois, Article X, Section 1

Question: Why do property taxes keep going up?
Answer: Because they can.

One Legged StoolOver the past several posts, I’ve discussed the means by which the state funds education, primarily through the General State Aid formula and the Poverty Grant. Just as every golfer knows that putts break toward the water, both of these means of funding have been gerrymandered in such a way as to bend the funding curve toward Lake Michigan and the Chicago Public School system, away from the collar counties and districts downstate.

That leaves the property tax as the last leg on the funding stool. As GSA and Poverty funds get diverted toward Chicago, districts in the collar counties have had to rely to a larger degree on property taxes to fund their schools. With the real estate crash of 2008, homeowners in McHenry County found themselves paying property taxes at unheard of levels, often reaching 5-7% of their homes’ values. When the value of your house goes down and taxes don’t go down as well, you don’t own your home, you’re just renting it from the government.

One would think that when property values decline, taxes would decline, as well. Not so. Local taxing bodies, including schools, are not subject to the same laws of economics as the rest of the world. Government never has to do with less, only those who pay the bills are expected to cut their standard of living. Local taxing districts can and do increases their property tax extensions annually, with such increases limited to the lesser of 5% or the increase in the national Consumer Price Index (CPI) for the year preceding the levy year. Your taxes may not go up so much when your assessed valuation declines, but it’s precisely at those times that local governments increase their levies to the maximum so as to maintain their level of funding.

The politicians in Springfield love this arrangement for several reasons. One is that they can impose all sorts of unfunded mandates on schools and stick the locals with the tab. The second is that, since the majority of the Democrats’ power structure resides in Cook County, howls of protest from overburdened property owners in the collar counties tend to fall on deaf ears. The following chart will illustrate what I mean:

Click Image to Enlarge

Click Image to Enlarge

These two properties belong to clients of mine. One lives in McHenry, and the other lives on the north side of Chicago. Their houses are roughly the same value, but the guy in McHenry pays almost double the taxes as the guy in Chicago, even though his house is house is worth almost $6,000 LESS.

That’s because the Chicago property is assessed at 10% of its fair market value and the McHenry property, like every other residential property in Illinois is assessed at 1/3rd of its fair market value. There’s a “state multiplier” which is supposed to bring equivalence to the properties inside and outside of Chicago, but as you can see, it falls far short of the mark. In addition, the Homestead Exemption in Chicago is $7,000, while the homestead exemption outside the city is $6,000. Adding insult to injury is the tax rate, which is 37% lower in Chicago than in McHenry, all because the money you send to Springfield isn’t coming back to your school district, it’s being sent to subsidize Chicago property taxpayers.

So there you have it, folks. You now know as much about school funding in Illinois as I do. So how do we fix it? We’ll discuss that in the next installment.

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  1. This is a good opportunity to elaborate on the deleterious effect TIFs have on property tax rates, and therefore on property tax value destruction.
    1. TIFs take money for 35 years, long after alleged ‘blight’ has been corrected. The money TIFs take includes normal inflationary tax increases on existing homes that were included in the TIF taxing district.
    Point: TIFs are for-profit entities.
    Solution: Define project to be funded a priori, collect exactly as much property tax diversion as was described to accomplish that project, then sunset TIF by law when pre-approved funding has been fulfilled.

    2. TIFs have cleverly been discovered as a loophole to dump tax liability onto neighboring communities. These can be classified as ‘Predatory TIFs’.
    Example: Lakewood’s new annexed TIF was created in a school district to which Lakewood sends no schoolchildren and sends NO PROPERTY TAX DOLLARS.
    Lakewood citizens faced Illinois Affordable Housing Act deadlines for producing a plan for 100 low income housing units. Voila, a tif (located across the moat of Rte 47, well away from Lakewood proper). Now, NON-Lakewood citizens will be burdened with paying for 35 years of educating Lakewood children, while property taxes generated by those new housing units producing those schoolchildren send all tax revenue to Lakewood.
    Win-win for Lakewood, lose-lose for the victimized community.
    Point: Voters who might politically influence a TIF formation have a financial incentive to dump liability onto a neighboring community who have no say in the matter.
    Solution: Assign all new residential TIF units into an automatic Detachment-Annexation to the school district hosting TIF municipality (Lakewood) children.

    3. TIFs take tax money which would have gone to schools. The money still goes to schools; it is obtained from all the other taxpayers within the taxing region.
    In McHenry County, all taxpayers are subsidizing many TIFs, because all incremental property taxes form existing property which have risen as a function of inflation are sent to TIF, and all the rest of us taxpayers pay more to MCC, MCCD, McHenry County Government, Valley Hi, Fire Districts, Libraries, Etcetera in order to make up for the amount of money taken by TIFs from countywide property tax collections.
    (All citizens in a region hosting a TIF serve as bankers for all grants, gifts, and subsidies given to private-for-profit TIF developers).
    Point: Don’t believe the party line that TIFs only take revenue that would not have occurred ‘but for’ the TIF.
    Solution: Change the rules for TIFs such that they not be allowed to be ‘For Profit’ and ‘Predatory’. If Chicago property tax money started to go to its schools, it would alter the formula of state funding. And Chicago property tax rates would go down substantially.

    If Chicago property tax RATES go back below 2% of total home value, it might be a little harder for Woodstock (for example) to justify property tax rates of 5% of total home value.

  2. Pingback: OK, Mr. Speaker, the Ball’s in Your Court. |

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