Bond analysis Steve Willson offers the following essay:
Property taxes in Illinois are too high. But how high is too high?
Two and a half percent.
I’d like to say two percent, because even that was higher than the average twenty years ago, but I think the howling would be excessive if the Illinois legislature tried to push THAT through.
But the extremely liberal Democrat state of Massachusetts, formerly known as Taxachusetts, was able to push through a bill called Prop 2½ in 1980 that limited property taxes to 2½ % of market value.
If Taxachusetts can do it, so can we! (The state sales tax rate in Massachusetts is 6.25%, the same as in Illinois. In some towns, voters chose to add 0.75%, raising the total sales tax rate to 7.00%, or about 75% of the total tax rate in most cities in Illinois. And Massachusetts has a flat 5.25% income tax rate.)
So I would like to make a suggestion to our state legislators:
Please introduce legislation prohibiting property taxes in ANY county from increasing for ANY purpose except debt service if the levy is more than 2½% of the estimated market value of the taxable property in the County. (Debt service is usually only about 5% to 7% of the total levy, and segregating it keeps interest rates lower on borrowings without increasing the amount of borrowings.)
Require that the levies of ALL government be kept proportionate to each other until taxes reach 2½% of market value or lower. Permit increases thereafter up to the millage limit prescribed by law or the rate of inflation.
In Counties such as McHenry, where property tax rates often exceed 3.5% of market value, it will take 16 years for property taxes to fall to 2½% of market value if property values increase by 2½% per year. It will take 20 years for property taxes to fall to 2½% of market value if property values increase by 2% per year. In other words, let’s be clear: this is actually a MODEST plan.
Will this hurt our local governments?
No, it won’t.
They’re fat and they will find savings only when the issue is forced upon them.
Consider schools, which account for about 70% of property taxes. I obtained data on all the school districts in Illinois and analyzed it. (I left out Chicago simply because it is such a large outlier. Including it only reinforces the conclusions because it spends far more than the average.)
The evidence is clear: there is zero correlation between results – student scores on standardized test and graduation rates – and how much is spent per pupil or how much teachers are paid.
The only modest correlation at all is with district size: small high school districts average $13,776 per pupil while large high school districts average $17,494.
Even this conceals wide variance. Small elementary districts range between $6,800 and $32,800. Large elementary districts range between $8,700 and $22,700. Small high school districts range between $9,900 and $24,200. Large high school districts range between $11,500 and $29,100.
The key point here is that elementary schools that spend only $8,000 or $9,000 per pupil produce results indistinguishable, especially after holding constant for income, districts that spend much more. Ditto high schools.
So holding levies flat in areas that pay much more than that will NOT hurt the schools, especially since many of them are experiencing declining enrollment. Think about that for a moment: IF enrollment is going down, THEN they will STILL be able to spend much more than the average per pupil for many, many years to come, even if the levy is held constant. In fact, even with the levy constant, they will be able to INCREASE the expenditures per student! And you can always give an out via local referendum.
But stopping the increases in these districts that spend far more than the average will, ultimately, force them to become more efficient. And it will, in the long run, bring down property tax rates.