|For years, proponents of a new education funding formula for Illinois have talked about bringing equity and fairness to education finance. Gov. Bruce Rauner took a major step toward that goal when he used his amendatory veto power to strip Senate Bill 1 of some of the most unfair and inequitable practices within the formula: subsidies related to Illinois’ Property Tax Extension Limitation Law, or PTELL, and tax increment financing districts, or TIFs.
Since 2000, school districts that are part of economic development zones called TIFs have been allowed to do something that non-TIF districts can’t – hide large amounts of their property wealth from the state when applying for aid for education.
School districts that can reduce their overall property wealth when applying for state aid look poorer, resulting in more aid from the state. So for every additional dollar the state gives to districts located in TIFs, it’s one less dollar the state can give to districts without TIFs.
Chicago Public Schools, for example, now has more than $6.6 billion of property wealth tied up in TIFs that it will keep off of its aid request to the Illinois State Board of Education, or ISBE. As a result, the state will give CPS more aid than it would have had CPS reported all the property wealth in its district.
In a 2013 report, the Illinois Policy Institute calculated that the 2011 TIF subsidy for CPS, holding everything else equal, was worth $265 million that year alone. More money for CPS meant $265 million less for districts throughout the state.
A similar practice of underreporting property value occurs for school districts operating under property tax caps, known as PTELL districts. Districts subject to PTELL also get to underreport their property values when asking for state aid.
ISBE has for years calculated and reported the financial impact of PTELL subsidies. The results reveal a system that’s strikingly unfair. The districts that can hide their wealth have, in some years, taken up to $800 million in subsidies from districts that can’t. And those subsidies have largely been limited to a select number of districts.
In 2009, when the PTELL subsidy was at its peak, CPS took in $505 million in subsidies at the expense of most districts statewide.
Awareness that PTELL and TIF subsidies disproportionately benefit some districts – and ideas for reform – are nothing new in education finance circles. Then-Gov. Pat Quinn’s Taxpayer Action Board highlighted the issue in 2009, and the Taxpayers’ Federation of Illinois brought the issue further to light in 2010. (Ted Dabrowski was a contributor to both reports.)
For too long, districts that aren’t affected by property tax caps or TIFs have been forced to subsidize the local property tax decisions of districts that choose to cap themselves or use TIFs.
Rauner was right to eliminate the unfairness of PTELL and TIF subsidies in his amendatory veto of SB 1.
To be clear, the governor’s veto ensures no district will get less funding in 2018 when compared with what that district received in 2017. The governor’s removal of PTELL and TIF subsidies only affects how new, additional dollars are distributed under the new education funding formula.
Why PTELL and TIF subsidies are unfair
The creation of local economic development zones and property tax caps is very much a local decision.
Take the city of Chicago. When Chicago officials create a new TIF district they are consciously deciding to keep future property wealth inside a development area. Officials know that will mean less future property wealth that CPS can count on for revenue.
But it’s not as if that property wealth is suddenly missing from Chicago. It’s just been directed away from CPS for another purpose. So, when the state provides Chicago with the TIF subsidy, the city as a whole is getting more than it’s entitled to.
Chicago is taking money out of its left pocket and putting it into its right pocket, then complaining that its left pocket has less money.
But downstate districts that don’t have TIFs, such as Palestine Community Unit School District No. 3, don’t care that Chicago is using its property wealth to create economic development areas. All Palestine CUSD No. 3 knows is that it is getting less money from the state because of Chicago’s subsidy.
The same goes for PTELL districts. Communities can use PTELL to cap their property taxes, but then ask the state formula to make up for what their districts are losing by giving them more state aid.
As with TIFs above, local officials want to have their cake and eat it too. They want their property taxes capped, but want somebody else to subsidize their education costs.
This is fundamentally unfair to school districts that aren’t receiving PTELL or TIF subsidies. They lose out because the total state aid pool is diminished by PTELL and TIF subsidies. In other words, every dollar the state spends on subsidies to PTELL and TIF districts is a dollar that should have been evenly distributed to all districts across the state.
Over the past decade and a half, non-PTELL and non-TIF districts have been unfairly deprived of billions of dollars.
PTELL districts alone have attracted over $7 billion in special subsidies since 2000, according to ISBE.
The unfairness of TIFs
At their height in 2009, nearly $20 billion of property value statewide was located in TIFs and therefore excluded from school districts’ local property wealth. The amount of property wrapped up in TIFs has fallen since then, but the amount remains substantial. Over $12 billion in property value across Illinois remained in TIFs in 2015.