Legislative panel backs expanding sales tax
Pritzker advocates for another way to ease property taxes
Gov. J.B. Pritzker, focused on winning over voters on a new graduated-rate income tax, is dismissing a proposal floated by a property tax relief task force that would expand the Illinois sales tax base to help fund public schools.
“That’s not something that I am supportive of; I think there are other ways for us to go about it,” Pritzker said of the idea, which was included in a draft report from the 88member panel. “But I think it’s worthy of people bringing up all of the ideas because look — there are a lot of things we ought to consider and it’s not just one thing that’s going to solve the property tax challenge that we’ve got in the state.”
The final report from the legislative panel was due Dec. 31, and both the missed deadline and the contents of the 36-page draft — shared with multiple news outlets this week — set off partisan squabbling. The difficulty in reaching a consensus on recommendations, even among Democrats, indicates that the historically thorny issue of substantial property tax relief could once again vex lawmakers this spring.
Expanding the reach of the sales tax while reducing the tax rate was a proposal backed by two task force subcommittees, signaling significant support from some of Pritzker’s fellow Democrats. Additional revenues could be used to boost state funding for schools and to stock a new property tax relief fund, said Rep. Sam Yingling, the Grayslake Democrat who is chairing the massive task force.
“I don’t think we can have a realistic conversation about property tax relief without addressing the need to diversify the education funding revenue stream,” Yingling said. “It’s just not possible.”
An attempt to expand the sales tax would come as Pritzker asks voters in November to change the state’s constitution to impose a graduated-rate income tax to replace the state’s current flat tax, to generate an estimated $3.6 billion.
Republicans have repeatedly attacked Democrats over pushing tax increases rather than cuts, and a sales tax expansion push coupled with the income tax overhaul could play into that Republican narrative during a legislative election year
Broad property tax relief has proved a difficult issue to address in Illinois spanning decades of leadership in the state. But some Democratic lawmakers have been hesitant to fully back Pritzker’s graduated income tax plan without a direct tie to property tax relief.
Last spring, lawmakers considered a proposal that would have frozen property tax rates if voters approved the graduated income tax, and if the state took on a larger share of funding education. But that proposal didn’t advance out of the House, and the massive task force was created instead.
Pritzker has promised to deliver tax relief to property owners and points to several pieces of legislation he’s signed since taking office as steps toward that goal. Those include a consolidation of downstate and suburban police and firefighter pension funds, increased school funding from the state, and his $45 billion “Rebuild Illinois” construction program.
“Those all work to alleviate local property tax need,” Pritzker said.
The idea of expanding the sales tax to include some services, such as haircuts, dry-cleaning, and accounting and legal work, has long been discussed and discarded.
Sen. Don DeWitte, a St. Charles Republican and a member of the task force, said new state revenue from legal adult-use cannabis and a recommitment of 100% of Illinois Lottery revenues to schools are other potential streams to increase the state’s share of education funding.
If the task force’s final recommendations include the sales tax expansion, that would touch off “a very long conversation and discussion,” DeWitte said.
“That one is going to require very careful analysis and construction,” DeWitte said. “The first thing people will think is that it’s an increase in taxes, unless we find a way to show it’s a shift and not an increase.”
That was the reaction of some top House Republicans, who denounced the draft report and said Democrats rejected their ideas that included limiting the so-called unfunded mandates on schools and local governments.
“For a state that is so in need of property tax reform, the Democrats have instead proposed tax increases,” House Republican Leader Jim Durkin said at a news conference this week. “Heaven help the middle class.”
The Civic Federation, a nonpartisan budget watchdog, has advocated for an expansion of the sales tax to some services as part of a broad fiscal overhaul that also would include limiting state spending and taxing retirement income.
Lawmakers’ “priority should be a comprehensive plan for what we’re doing to fund our government,” Civic Federation President Laurence Msall said.
“Merely expanding the sales tax base and then saying that the new services will go to relieve property taxes is not likely to have an impact unless there is a comprehensive plan for whether that amount of revenue will be sufficient for putting a freeze on school district property taxes or whether there’s going to be some greater revenue sharing by the state,” Msall said.
Lawmakers have tried to overhaul the state’s property tax system through nearly a dozen task forces, special commissions and blue-ribbon panels since the 1970s.
In the mid-1990s, Republican Gov. Jim Edgar championed a plan to raise state income taxes by more than $1 billion, with a corresponding reduction in local property taxes and an infusion of new funding for schools.
But the plan ran into staunch opposition from Edgar’s fellow Republicans in the Senate.
The latest draft report raises the prospects of such a tax swap, with one subcommittee calling for “the removal of school districts from the property tax system so that the state of Illinois has sole funding responsibility for K-12 schools.”
But a key Democratic lawmaker who was a member of the task force said the idea is “astronomically untenable.”
Rep. Mike Zalewski, a Riverside Democrat who chairs the House Revenue
Committee, said the shift would require billions of dollars in new funding beyond the nearly $9 billion in general revenue the state is spending this year. Local school districts together spent nearly $20 billion during the 2017-18 school year, according to the most recent figures from the Illinois State Board of Education
“Within the confines of the current budget and the current way we fund things, it doesn’t seem like it’s in the immediate future,” Zalewski said.
The last major change the General Assembly approved was a 1991 law that capped increases in property tax collections in the collar counties at 5% or the rate of inflation, whichever is less.
The law was extended to Cook County three years later, and other counties were later allowed to adopt the caps by ballot referendum.
The draft report contemplates a number of changes to the tax caps, including eliminating them altogether and leaving it up to local governments to decide how much revenue is needed to fund operations.
Yingling said he remains optimistic the General Assembly will act on a number of the recommendations the task force is putting forth.
“I think we’re at a very unique nexus at this point in time where the legislature understands and has the willpower to do something about the property tax crisis,” Yingling said. “There is a definitive recognition that something has to be done and it has to be done now.”