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Resolving the School Funding Debate

Executive Summary

For over 30 years, Illinois leaders have debated how to properly fund education to ensure a quality education for all children no matter where they live. Through economic boom and bust, school districts with inadequate resources have been unable to provide the level of education that more prosperous districts provide. Areas with high property tax rates have struggled to attract investment from businesses and homeowners. During this time, some schools have fallen chronically short of state learning standards, often the very same ones without local tax base to support their schools. The state’s fiscal position also has deteriorated, especially in regards to its unfunded pension liability.

Two detailed pieces of legislation have been proposed to address these challenges: Senate Bill 1 (SB 1), embodying Gov. Rod Blagojevich’s FY 2008 Budget Proposal, and House Bill 750 (HB 750). While there are significant differences between the two packages, there are common aspects that meet several principles MPC and A+ Illinois have long supported. Both packages aim to:

MPC recommends the following principles be used for developing a hybrid plan that will enhance accountability, raise sufficient revenues fairly across taxpayers, improve the system to address fu ndamental weaknesses, and provide long-term changes to assure lasting reforms (see table on page 6 of the full report):

1. Invest in education and targeted property tax relief.

2. Base the funding reform on the state income tax. It is the broadest tax available, is transparent, and closely matches ability to pay. There are also mechanisms to protect working families from increases in the income tax:

With a 5 percent income tax rate and the above credits to prevent increased taxes on working families, the net change would be $2.66 billion in the first year and $5.64 billion once fully phased-in.

In order to cover education reform and property tax relief, the total increase of the corporate income tax would be $475 million in the first year, and $1 billion when fully phased-in.

3. Share tax burdens across all classes of taxpayers. Businesses need to be part of the solution, but relying on one single group of taxpayers to shoulder the entire burden (as proposed by SB 1) would harm Illinois’ ability to retain jobs.

4. Adopt reform measures to ensure new revenues are well spent.

Addressing the state’s education funding, property tax and pension liability crises are extremely important for Illinois ‘ students, families and communities. The reforms proposed by the Metropolitan Planning Council will put the state on more solid fiscal footing and reduce the need to find cuts each year to pay for existing obligations. There are other issues that will also need to be addressed in the near future, including a long-term state capital plan that puts a strong emphasis on transit, housing investments, and infrastructure needs tied to smart planning decisions.

Yet another critical element to address in this year’s State budget is the dire need of transit operating revenues, particularly for the Regional Transportation Authority. The RTA needs state authorization of $280 million from the northeastern Illinois region and a continuation of $70 million of state funding to address critical operating needs for CTA, Metra and Pace. Several additional sources of funding are being debated for this purpose and MPC is strongly supportive of the General Assembly reaching consensus on this budget to address transit operating needs. These options include increasing the sales tax rate in the RTA service area, including consumer services in the sales tax; and fees on parking facilities and congestion pricing on toll roads to encourage transit.

The reforms summarized in this report are not the only solutions. However, they do illustrate the state has workable solutions that meet revenue needs, are responsive to taxpayer fairness, and will result in tangible outcomes in Illinois for years to come.

Click here to read the full report.