Written February 3, 2006
This is an exciting time in Springfield, and all over Illinois, to solve the problem of over-reliance on property taxes that fund our public elementary and secondary schools.
My objectives in these Senate Bills are to guarantee property owners that they will receive substantial, permanent property tax relief; to identify a large and growing alternative source of funding to fill the needs of our schools and local governments; to eliminate one of the fundamental causes of school construction and operating referenda in areas like ours where there is rapid growth; and finally, to relieve one of the major spending pressures that creates regional antagonisms by providing significant education funding reform in Illinois.
First of all, the problem with past proposals to shift funding of schools from property tax to income tax is that the majority of the people I serve don't believe that the property tax relief promise will be kept. Just like "the lottery will go to education", "the tollway will be a freeway as soon as the construction bonds are paid for", "casino gambling will solve all our budget problems", most people recognize that surely our income tax will increase as promised, however our property taxes will again increase after only two or three years of minor savings.
Senate Bill 2696 provides massive, permanent property tax relief for all real property owners by providing a "freeze" on property tax assessments until you sell your home and buy a new one. It is similar, but not identical, to Proposition 13 passed in California 26 years ago which still enjoys 65% approval by voters.
There is no other place in the Internal Revenue Service Tax Code where capital gains are taxed before an asset is sold. When stocks that you own increase in value, you do not pay tax until you sell. When a business that you own increases in value, you do not pay tax until you sell.
However, when your home appreciates or increases in assessed value, you pay a higher property tax every year, even though you haven't sold it and may not ever intend to sell it. You have neither "realized" the property gain nor do people typically have the money to pay skyrocketing property taxes, leading to the complaint, "You're taxing me out of my own home!"
As homeowners, why do we allow the government to tax us on property capital gains on our homes that we may never receive? SB2696 will go a long way in providing massive, permanent property tax relief and allow many to stay in their homes, neighborhoods, and schools until they choose to "realize" their home investment gain.
Secondly, the problem with "freezing property taxes" is finding an alternative growing revenue source as an effective replacement. For those who say that SB2696 is impractical because of the growing financial needs of local government and schools, I propose "leveling the playing field" for the proper collection of sales tax on retail purchases made over the Internet.
When we buy an item from our local retailer, we pay sales tax. When we pick up the phone and buy an item, we pay sales tax. But, when an item is purchased at a computer terminal, there's no sales tax collection enforced. How can this inconsistent application of sales tax collection be fair, especially to the local retailer who pays property taxes like the rest of us and provides jobs?
This is an enforcement of sales tax collection on "retail purchases made over the Internet" issue, not a "tax on access to the Internet" issue. In fact, this part of the legislation repeals the telecommunication tax that is currently charged on your D.S.L. internet access.
According to "State Legislatures" Magazine the revenue lost currently by the lack of consistent application of the sales tax law in Illinois is between $600,000,000 and $1,000,000,000 (Billion!) each year and growing at 12-18% per year. Twenty percent of the sales taxes collected from this source would go to local government in the same way that sales tax is currently distributed, and the remaining 80% would go back to school districts on an equitable per-pupil allocation, so that every child in every school district benefits by receiving their fair share.
Next, we need to eliminate one of the major causes of property tax increases, i.e. referenda to pay for building new schools, by charging the correct amounts for school impact and transition fees.
Growth is good...if it completely pays for itself. In many cases, the problem with new development, especially for schools is that homebuilders come in, sell homes at a certain price to new residents, and then two to three years later, current and new residents are stuck with a referendum for higher property taxes to pay for schools, roads, and water. This just isn't fair to current residents.
Therefore, the intention of this aspect of SB2696 is to strengthen the authority of local government to insist on appropriate upfront impact and transition fees. (Transition fees are working capital for running schools for the initial 18 months between the times when a family moves in, a child goes to school, and the proper taxes for that home are collected.)
The problem for developers is that, if impact and transition fees are required to be paid without any financing up front, housing becomes less affordable. However, if these building construction and working capital costs, i.e. impact and transition fees, need to be spread over ten years, that is certainly a reasonable proposal. Just as we do not pay for our homes with cash money down, we should not ask developers to pay for appropriate and expensive infrastructure capital costs with cash money up front.
This portion of SB2696 creates the finance mechanism for developers to pay the total impact and transition fees up front that schools need while spreading the expense over 10 years, as homes are sold.
Finally, SB2793 proposes some common sense concepts for education reform. What I learned from Jesse Jackson Sr.'s visit to Waubonsie Valley High School is that some of the folks who are suggesting that we tax ourselves more in order to send them more should look at the fact that Chicago Public School children already receive approximately 50% more on average than Aurora Public School children.
The amount of money that our public schools receive is important, but it's also important how that money is spent. Chicago public schools spend approximately 40 cents of every dollar on administration support and overhead, and Aurora schools spend approximately 30 cents. This "dime on every dollar" on a $5B Chicago schools budget represents $500,000,000 dollars every year that could be going to some of the improvements that some Chicago political leaders desire.
Senate Bill 2793 would require schools in Illinois, including Chicago, to spend at least 65% of their funding in the classroom. It allows a Downtown Chicago Pilot Program for "educational choice" so that poor parents would have the same freedom as wealthier parents have in Illinois to take one-half of the per pupil spending in Chicago ($6000) to any school they select for the best interest of their child. I believe that our public schools, teachers, and administrators can eventually successfully compete for every child in Illinois, but our system must be focused on the benefit of our kids.
This is just a rough draft of concepts that can move us forward. They need to be sharpened in the debate that will take place inside and outside of the General Assembly.
