Tax Policy

Tax Policy

CMAP analyzes the interaction of tax policy, land use and development, and the economy in order to facilitate a regional perspective on how the tax system affects the region and its communities. The region needs a tax system that provides ample opportunity for local governments to generate revenue that supports their plans, goals, and desired development patterns and their ability to adapt to changing local economic conditions. Current tax policy can make communities highly dependent on the property tax or retail sales, leading to overdevelopment of retail, lack of resources for communities that want other types of development, and a cycle of disinvestment for some places. ON TO 2050, the region’s new comprehensive plan, recommends that reforms both modernize tax policy and encourage sustainable economic activity. These recommendations have evolved since the plan’s predecessor, GO TO 2040, first recommended that the CMAP Board establish a task force to advise it on state and local tax policy matters.

Modernizing state tax policy

Tax policies should be modernized to address systemic issues that affect communities’ ability to adapt to changing consumer preferences, technology, and mobility. A reformed state tax system that offers communities more revenue options could better support regional economic development as well as the goals of the region’s communities, even in the face of a changing retail landscape. It could also provide better support for infrastructure investment and promote long term fiscal sustainability in the transportation and land use decisions that local governments make.

A 2017 ON TO 2050 strategy paper on Tax Policies and Land Use Trends explored the extent that municipalities are able to support desired land uses with the disbursements of state revenue they receive from the State of Illinois. This paper built from a 2014 CMAP report, Fiscal and Economic Impact Analysis of Local Development Decisions, which highlighted the choice between economic and fiscal outcomes that a series of case study communities faced.

Along with other strategies, ON TO 2050 recommends that the State of Illinois modernize and expand its sales tax base to include additional services. Doing so would generate needed revenue for transit and help communities to create a more balanced land use mix. These reforms would also ensure that similar consumers are taxed in similar ways, minimize the influence of taxation on consumer purchases, and mitigate the cascading nature of sales taxes. To expand on this recommendation, CMAP published an issue brief addressing the benefits of adding more services to Illinois' sales tax base.

State tax policies can also create wide divergences in revenues among municipalities. As explored in the 2017 ON TO 2050 strategy paper on Municipal Capacity, municipalities with strong revenue levels may be better able to maintain their fiscal condition, which may lead to greater capacity to achieve local and regional goals.

Balancing market and fiscal feasibility in local development processes

ON TO 2050 recommends communities incorporate market feasibility and assessments of long-term infrastructure costs in local planning efforts and development decisions. Underpinning plans with market and fiscal analyses is necessary to help communities develop in a manner that they can sustain over the long term. Currently, many communities assess fees for short term infrastructure needs, like water main extensions or new stoplights and turn lanes. However, they often do not assess the mid and long term costs of maintaining new infrastructure or more heavily utilized existing facilities. This can lead to quickly increasing taxes to maintain or rebuild road, water, and other infrastructure. At other times, communities may extend infrastructure for prospective development that is not realized, leaving them few options to recoup costs.  

Planning for current market conditions as well as major shifts in the context of local and regional goals can help local governments create implementable plans. In addition, planning must strongly incorporate assessment of both local fiscal impact as well as long term costs to supporting jurisdictions. This is a particularly important consideration for communities at the developing edge of the region, who must align expansion proposals with the immediate and long-term cost of the new infrastructure required to support that development. A 2014 CMAP report, Fiscal and Economic Impact Analysis of Local Development Decisions, also provided information on municipal fiscal impact analysis practices.

Basing plans primarily on potential near term fiscal outcomes without tying those outcomes to market realities can lead to overbuilding of some development types and construction of underutilized public infrastructure, leaving communities with the costs of supporting development without revenues to match. In particular, the state distribution of sales taxes to municipalities based on sales made within their jurisdictions may lead some municipalities to promote excessive retail construction, which results in high vacancy rates compared to other regions.

Reforming local economic development incentives

Illinois state and local governments spend or forgo significant tax revenues to spur and support economic development. ON TO 2050 calls on the State of Illinois and the Chicago region to pursue performance-based approaches that help make the best use of limited resources and use data and stakeholder feedback to improve decision making. In 2013, CMAP released a report analyzing how local governments use incentives to accomplish a variety of policy and planning objectives. While most municipalities in northeastern Illinois use such incentives, decision makers often have a limited understanding of the value of those investments. Follow-up analyses have looked at the recurring use of sales tax rebates and their effects across jurisdictional boundaries.

Phasing out Cook County property tax classification

In Cook County, property tax classification is an additional factor that drives up commercial and industrial property tax rates, hurting disinvested communities in particular. This may discourage business investment in Cook County in favor of opportunities elsewhere. By using a higher assessment ratio for businesses than residences, this system allocates a higher share of the property tax burden to businesses. This policy does not exist in the collar counties and can deter reinvestment in affected communities, as well as hindering potential growth in their property tax base. In many communities, high commercial and industrial tax rates present a barrier to attracting development, even when infrastructure and infill opportunities are plentiful. By reforming its classification system, Cook County could grow the tax base over time and eventually reduce the tax burden on residents, thereby mitigating the need for potential increases in residential rates.

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Tax Policy

CMAP analyzes the interaction of tax policy, land use and development, and the economy in order to facilitate a regional perspective on how the tax system affects the region and its communities. The region needs a tax system that provides ample opportunity for local governments to generate revenue that supports their plans, goals, and desired development patterns and their ability to adapt to changing local economic conditions. Current tax policy can make communities highly dependent on the property tax or retail sales, leading to overdevelopment of retail, lack of resources for communities that want other types of development, and a cycle of disinvestment for some places. ON TO 2050, the region’s new comprehensive plan, recommends that reforms both modernize tax policy and encourage sustainable economic activity. These recommendations have evolved since the plan’s predecessor, GO TO 2040, first recommended that the CMAP Board establish a task force to advise it on state and local tax policy matters.

Modernizing state tax policy

Tax policies should be modernized to address systemic issues that affect communities’ ability to adapt to changing consumer preferences, technology, and mobility. A reformed state tax system that offers communities more revenue options could better support regional economic development as well as the goals of the region’s communities, even in the face of a changing retail landscape. It could also provide better support for infrastructure investment and promote long term fiscal sustainability in the transportation and land use decisions that local governments make.

A 2017 ON TO 2050 strategy paper on Tax Policies and Land Use Trends explored the extent that municipalities are able to support desired land uses with the disbursements of state revenue they receive from the State of Illinois. This paper built from a 2014 CMAP report, Fiscal and Economic Impact Analysis of Local Development Decisions, which highlighted the choice between economic and fiscal outcomes that a series of case study communities faced.

Along with other strategies, ON TO 2050 recommends that the State of Illinois modernize and expand its sales tax base to include additional services. Doing so would generate needed revenue for transit and help communities to create a more balanced land use mix. These reforms would also ensure that similar consumers are taxed in similar ways, minimize the influence of taxation on consumer purchases, and mitigate the cascading nature of sales taxes. To expand on this recommendation, CMAP published an issue brief addressing the benefits of adding more services to Illinois' sales tax base.

State tax policies can also create wide divergences in revenues among municipalities. As explored in the 2017 ON TO 2050 strategy paper on Municipal Capacity, municipalities with strong revenue levels may be better able to maintain their fiscal condition, which may lead to greater capacity to achieve local and regional goals.

Balancing market and fiscal feasibility in local development processes

ON TO 2050 recommends communities incorporate market feasibility and assessments of long-term infrastructure costs in local planning efforts and development decisions. Underpinning plans with market and fiscal analyses is necessary to help communities develop in a manner that they can sustain over the long term. Currently, many communities assess fees for short term infrastructure needs, like water main extensions or new stoplights and turn lanes. However, they often do not assess the mid and long term costs of maintaining new infrastructure or more heavily utilized existing facilities. This can lead to quickly increasing taxes to maintain or rebuild road, water, and other infrastructure. At other times, communities may extend infrastructure for prospective development that is not realized, leaving them few options to recoup costs.  

Planning for current market conditions as well as major shifts in the context of local and regional goals can help local governments create implementable plans. In addition, planning must strongly incorporate assessment of both local fiscal impact as well as long term costs to supporting jurisdictions. This is a particularly important consideration for communities at the developing edge of the region, who must align expansion proposals with the immediate and long-term cost of the new infrastructure required to support that development. A 2014 CMAP report, Fiscal and Economic Impact Analysis of Local Development Decisions, also provided information on municipal fiscal impact analysis practices.

Basing plans primarily on potential near term fiscal outcomes without tying those outcomes to market realities can lead to overbuilding of some development types and construction of underutilized public infrastructure, leaving communities with the costs of supporting development without revenues to match. In particular, the state distribution of sales taxes to municipalities based on sales made within their jurisdictions may lead some municipalities to promote excessive retail construction, which results in high vacancy rates compared to other regions.

Reforming local economic development incentives

Illinois state and local governments spend or forgo significant tax revenues to spur and support economic development. ON TO 2050 calls on the State of Illinois and the Chicago region to pursue performance-based approaches that help make the best use of limited resources and use data and stakeholder feedback to improve decision making. In 2013, CMAP released a report analyzing how local governments use incentives to accomplish a variety of policy and planning objectives. While most municipalities in northeastern Illinois use such incentives, decision makers often have a limited understanding of the value of those investments. Follow-up analyses have looked at the recurring use of sales tax rebates and their effects across jurisdictional boundaries.

Phasing out Cook County property tax classification

In Cook County, property tax classification is an additional factor that drives up commercial and industrial property tax rates, hurting disinvested communities in particular. This may discourage business investment in Cook County in favor of opportunities elsewhere. By using a higher assessment ratio for businesses than residences, this system allocates a higher share of the property tax burden to businesses. This policy does not exist in the collar counties and can deter reinvestment in affected communities, as well as hindering potential growth in their property tax base. In many communities, high commercial and industrial tax rates present a barrier to attracting development, even when infrastructure and infill opportunities are plentiful. By reforming its classification system, Cook County could grow the tax base over time and eventually reduce the tax burden on residents, thereby mitigating the need for potential increases in residential rates.

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Tax Policy Updates

Updates

March 05, 2019

The benefits of adding more services to Illinois' sales tax base

This analysis is one of a series examining transportation funding in northeastern Illinois and explaining the revenue recommendations included in ON TO 2050.

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November 28, 2017

Property tax burden in the Chicago region

Nov 28, 2017 Property tax burden in the Chicago region ...

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May 11, 2016

Sales tax rebates remain prevalent in northeastern Illinois

  Download PDF now.   In Illinois, municipalities and counties receive sales tax revenue based on the location of sales.  This structure has resulted in the rise of...

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October 16, 2015

Retail vacancy and sales tax revenue in the CMAP region

This Policy Update looks at the relationship between retail vacancy and sales tax revenues in the region's communities.

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May 22, 2015

Recent Reports Explore State Revenue Reform Options and Challenges

The scheduled spring session of the 99 th Illinois General Assembly is coming to a close.  However, the state's Fiscal Year 2016 budget has not yet been passed due to significant disagre...

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May 11, 2015

Replacing the state motor fuel tax

There is growing consensus that continued reliance on the motor fuel tax (MFT) is not an appropriate long-term solution for transportation funding.  Despite being one of the primary re...

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February 06, 2015

Municipal Reliance on Property, Sales, and Income Taxes and Their Relative Stability

Local revenue sources differ in terms of stability and this variation affects the ability of communities to provide consistent services and maintain tax burdens.

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December 18, 2014

Civic Federation Report Profiles Unincorporated Cook County

The Civic Federation recently released a report profiling unincorporated areas across six Cook County townships.

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December 04, 2014

December 4, 2014

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November 07, 2014

Cook County property tax classification effects on property tax burden

The use of property tax classification in Cook County makes it difficult to encourage and strengthen non-residential development in existing communities.

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July 31, 2014

Local Government Consolidation Efforts in Northeastern Illinois

Evanston and River Forest Townships have explored ways to consolidate operations with their surrounding municipalities.

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July 16, 2014

New Report Describes Oregon Experience with Road Usage Fees

In 2013 Oregon enacted the nation's first road usage fee, following the completion of a pilot program.

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July 10, 2014

Comparing Municipal and Township Transportation Revenue Sharing in Illinois

While local motor fuel tax allotment criteria are uniform across the state, the road systems they serve are not.

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July 02, 2014

Recent Legislative Action on Local Government Consolidation

House Bill 5785 would allow a limited number of special districts to be dissolved into counties, municipalities, or other special districts.

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June 26, 2014

Senate Finance Committee Weighs Short-Term MAP-21 Extension

The Preserving America's Transit and Highways Act (PATH) of 2014 would extend the nation's highway and transit programs through December 31, 2014.

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June 20, 2014

Two New Highway Trust Fund Proposals

New federal transportation proposals attempt to identify sustainable revenue sources as the HTF nears insolvency later this summer and MAP-21 is set to expire September 30, 2014.

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June 18, 2014

Evaluation of State Transportation Revenue Sharing with Local Governments

This is the second in a series of three Policy Updates on the structure of transportation funding programs in Illinois, as well as the governance of the state and local highway system.

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June 13, 2014

Draft GO TO 2040 plan update available for public comment through August 1, 2014

Submit comments on-line and attend open house meetings throughout the region for the draft GO TO 2040 plan update and FFY 2014-19 Transportation Improvement Program.

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June 19, 2012

DuPage County Seeks to Improve Accountability and Efficiency

Last month, the DuPage County Board released an independent assessment of 24 special districts, each of which is governed by board members who are appointed by the DuPage County Board Chair....

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June 27, 2012

Decoding Property Taxes

Local news coverage this week has highlighted how difficult it can be to understand the process of assessing property taxes. The Chicago Tribune and Crain's Chicago Business both looked at...

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