TIF reform is desperately needed and one example of this is Chicago. The point of a TIF is to help rekindle a blighted area, yet nearly one-third of Chicago real estate revenue goes to a TIF district that includes some of the trendiest neighborhoods, as well as valuable real estate. Not only does this divert money away from Chicago Public Schools, it makes Chicago appear to have a much lower ability to self-fund schools through property tax revenue than it actually has—a smaller local capacity.
The new school funding formula with this smaller local capacity means that state funds that could go to suburban and downstate schools are instead sent to Chicago to backfill those dollars—and these are big numbers. According to The Civic Federation, Chicago collected $660 million in TIF revenue in 2017.
Commercial Property Tax Reform
We can also change how Illinois’ commercial real estate revenue is distributed. While it makes sense for the revenue from a property to go to the local fire department or village for these services, it makes less sense from an education funding standpoint. Commercial properties and the school district lines they are drawn within are almost meaningless. Yet the bulk of the property tax revenue goes to the local school district.
These arbitrary borders have helped create a cycle of “have” and “have not” school districts. For instance, if a big commercial facility moves into an area, one school district gets all the riches while the surrounding ones get nothing, even though the new facility’s workers and customers are just as likely to live in these surrounding districts.
It also creates a feedback loop. Areas with commercial growth will have a lower property tax rate, which will bring more growth. Areas without growth are likely to see businesses move, which puts upward pressure on rates for those who stay.
Areas of the state have essentially become economic deserts due to current policy. Where I grew up in the south suburbs and East St. Louis are examples of this: despite possessing excellent fundamentals for growth, the very high property tax rates make it unlikely without a government subsidy.
A regional or statewide reform approach for commercial property taxes would rectify this situation. This sort of system would soften the blow when a major property taxpayer leaves an area. It would also create teamwork between municipalities to recruit businesses to the state.
Once property taxes reach a certain level, it is difficult to reverse the trend because by then organic growth is nearly impossible. Before it is too late, we need to put a hard cap on property tax rates that is below the point of no return. For instance, once property tax rates reach 3% of market value, someone buying a home with 20% down pays more in taxes than a monthly loan payment.
A hard cap of 3% is roughly three times the national average. If we can’t cap it there, then where can we cap it?
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