CENTER FOR TAX AND BUDGET ACCOUNTABILITY 70 E. Lake Street Suite 1700 Chicago, Illinois 60601 direct

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• CENTER FOR TAX AND BUDGET ACCOUNTABILITY70 E.
  Lake Street ? Suite 1700 ? Chicago, Illinois
  60601 ? direct 312.332.1049 ? Email
  rmartire_at_ctbaonline.org
• Hot Legislative Topics
• Illinois Association of School Board Officials
• Wednesday, May 14, 2008 230 pm
• Pheasant Run Resort
• 4051 E. Main Street
• St. Charles, IL
• Presented byRalph MartireExecutive
  Director

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• What is the problem that causes all other
  problems?

? ? ?
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• The states fiscal policy
• is the culprit
• The bad attitude of the powers that be is
  merely icing on the cake

TAX POLICY
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Illinois State Local Revenue
FIRST, A SNAPSHOT OF WHAT IS

• In 2005 (the most recent national comparison
  available), state and local revenue came from the
  following sources
• PROPERTY TAX 38
• SALES TAX 17
• EXCISE TAX 17
• INDIVIDUAL INCOME TAX 16.2
• OTHER 7.4
• CORPORATE INCOME TAX 4.4
• SOURCE Federal Tax Administrators Data

PROPERTY TAX RELIANCE
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• This makes Illinois the 6th most reliant state on
  property tax revenue in the nation.
• Two of the states more reliant on property taxes
  than Illinois Texas and New Hampshire do not
  have income tax.
• Illinois is more reliant on property taxes than
  Florida, Nevada, Tennessee, Alaska, South Dakota,
  Washington and Wyoming which also dont have
  income taxes.

PROPERTY TAX RELIANCE
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WHY EDUCATION

• Illinois ranks 49th out of 50 states in the
  portion of education funding covered by state
  versus local revenue
• Illinois is the most reliant state on property
  taxes to fund schools in the nation.
• (National Education Association Data)

PROPERTY TAX RELIANCE
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WHAT SHOULD BE

• FAIR ? PROGRESSIVE
• RESPONSIVE ? TO MODERN ECONOMY
• STABLE ? DURING POOR
• ECONOMIES
• EFFICIENT ? DOESNT DISTORT
• PRIVATE MARKETS

ELEMENTS OF A SOUND AND FAIR FISCAL SYSTEM
BUT ISNT
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WHICH HAS CONSEQUENCES FOR ANNUAL REVENUE GROWTH

?
NEW ?
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THERE ISNT ANY
?
NOT SO MUCH
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FY 2008 DOESNT LOOK ANY BETTER
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FY 2008 ESTIMATED BUDGET DEFICIT
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STRUCTURAL DEFICIT
Adjusts solely for historic rates of inflation
and population growth, and assumes normal
economic growth.
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• Illinois has the 5th largest population (over 12
  million) and economy (about 600 billion
  annually) in the nation, but
• Overall, Illinois total state AND local tax
  burden, as a percentage of personal income ranks
  only 45th in the nation.
• The second lowest tax burden in the Midwest to
  Missouri.
• Illinois taxes 14.8 of income - Missouri 14.7

ILLINOIS IS LOW TAX OVERALL
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• But Illinois is high tax for low middle income
  families
• Illinois also ranks only 42nd in spending among
  the states

ILLINOIS IS LOW TAX OVERALL
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State Local Tax Burden as a Percentage of Income
REGRESSIVE
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INCOME INEQUALITY
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Shares of U.S. Household Income by Quintiles
(1980 2005)
HOUSEHOLD INCOME
Shares of Household Income by Quintiles - 2006
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Ignoring all thatheres the 2008 lottery
proposal summary

• Sell or lease 80 of the Illinois Lottery for
  10 billion
• Use 7 billion to fund a capital program, and
  float another 3.8 billion in capital bonds
• Use 3 billion to purchase an education funding
  annuity

2008 LOTTERY
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The Annuity Fund

• Create an annuity fund with the 3 billion
  balance
• Combined with the retained state interest, will
  generate 600 million in annual revenue stream to
  fund education over the next 25 years
• Intended to replace current Lottery

ILLINOIS LOTTERY
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Whats Missing?

• Funding Equity/Property Tax Relief
• Higher Education
• Sustainability
• Growth
• Cliff

ILLINOIS LOTTERY
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• And thats a best case scenario
• Just 2 years ago, full sale of lottery was to
  generate 10 billion
• Starting point is 22 million less than 2007
  lottery proceeds to CSFover 622 million
• Over the last 5 years, lottery revenue has grown
  by an average of 27 million per year
• Thats 108 million in lost revenue over 4
  years what happens when annuity goes?

ILLINOIS LOTTERY
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SB750 is designed to

• Be sound tax policy for the modern, capitalist
  economy
• Make tax burden fairer, by making it more
  progressive?the bottom 60 of income earners
  wont pay more in taxes after SB750 passes
• Improve school funding by
• Raising the foundation level
• Enhancing special education funding
• Targeting 300M in additional funds to struggling
  schools
• Investing 300M more per year in higher education
• Eliminate the Unfunded Pension Liability
• Provide progressive property tax relief
  statewide, that effectively helps struggling
  communities while reducing fixed costs for
  business
• Keep Illinois status as a low tax state

SB750
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THE RAMP
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After SB750

• Flat payments of 3.4 billion per year amortize
  the full unfunded liability
• The ramp goes away, out year payments become
  easier
• Normal cost handled by current revenue

REFORM
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INCOME TAX INCREASE

• 3 ? 5
• 3 ? 2 5
• 2/3 67
• Note, corporate rate goes up from 4.8 to 8,
  but?overall corporate tax burden goes down!

SB750
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SALES TAX BASE
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• Brings stability by taxing solely consumer
  services, like bowling, lawn care and health
  clubs
• SB750- DOES NOT TAX healthcare, housing or
  business services

SB750
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SB 2288
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SB 2288
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Compare that to a Gross Receipts Tax
?
?
?
Lumber Company
?
Finishing Company
Furniture Manufacturer
Wholesaler
Retailer
Tax
Tax
Tax
Tax
TAX
? GRT's are regressive inefficient
Consumer
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HIGHER EDINVESTMENTS
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COMMUNITY COLLEGES
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Current Basis for Foundation Level

• The Illinois state Foundation Level is the
  minimum per child guaranteed expenditure for K-12
• Does NOT include poverty, special ed,
  transportation, etc.
• Currently 5,734 but not tied to any measurable
  standard

K-12 FUNDING
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Education Funding Advisory Board (EFAB)

• Change basis to a measurable outcome standard,
  predicated on costs and test results
• Foundation Level should be at least 7,191 (after
  adjusting for inflation)
• Total cost 1.8 billion

EFAB
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SPECIAL EDUCATION FUNDING(Not so Special)

• 8,000 was granted in 1985 per special ed
  instructor
• Increased in FY 2008 to 9,000 per special ed
  instructor
• Adjusting for inflation, in 2008 a school
  district would need either 15,844 (CPI) or
  19,767 (ECI) just to stay even

SPECIAL ED
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For Tax Fairness ? FAMILY TAX CREDIT

• EXAMPLE
• Tax Credit of 500
• Income Tax Liability 200
• Balance 300
• Taxpayer receives a 300 check for the balance,
  offsetting sales, excise and property taxes paid.

• SUMMARY
• 900 million refundable credit targeted to
  middle, low and no income families
• Designed to eliminate impact of tax enhancements
  under SB750 on middle/low income taxpayers
• Net effect through refundability feature, the
  credit effectively relieves both income and sales
  tax changes, so the bottom 60 of income earners
  do not pay more in taxes under SB750

FAIRNESS
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PROPERTY TAX RELIEF

• AMOUNT 2.9 billion, statewide
• METHOD Abatement of 25 of the property taxes
  that fund education Minimum guaranty of 20,
  with extra relief to low income areas
• TRANSPARENCY Amount of abatement shown on
  individual
• property tax bills
• Description River Forest Chicago Heights
• Total Bill 10,000 6,000
• School Levy 7,000 4,000
• Portion of School Levy (1,400)
  (1,200)
• already paid by the state 20 minimum 30, after
  bonus relief
• Net Paid by Property
• Tax Payor 8,600 4,800

PROPERTY TAX RELIEF
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CONTINUING APPROPRIATION

• A B C
• ? ? ?
• FY BR 1.8 billion ECI Foundation
  Level CPI
• ?
• 2.9 billion Property Tax
• ?
• Special Education Mandate, Bonus
  Investment Pool

CONTINUING APPROP.
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BENEFITS
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SB750
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For More Information

• Center for Tax and Budget Accountability
• www.ctbaonline.org
• Ralph M. MartireExecutive Director(312)
  332-1049rmartire_at_ctbaonline.org
• Chrissy A. ManciniDirector of Budget and Policy
  Analysis(312) 332-1481cmancini_at_ctbaonline.org

Further Information