Illinois needs to revamp its system of funding public education.

Full Report: Alternative State and Local Options to Fund Public K-12 Education in Illinois

Currently, school districts in Illinois receive the bulk of their revenue from property taxes. Relying on property taxes has caused Illinois to have one of the most unequal education systems in the country, with the largest funding gap between wealthy and poor school districts of all 50 states. According to Funding Gaps 2015 by The Education Trust, only 81 cents are spent on schools and students in poorer districts for every one dollar spent on schools and students in wealthier districts. Students in poorer districts tend to have lower-quality teachers, fewer after-school programs, and less technology to improve student outcomes.

Illinois needs more revenue for elementary and secondary education. The Illinois State Board of Education requested an additional $730 million to meet funding requirements for K-12 public schools. House Bill 3763 passed by the Illinois Legislature and signed by the governor only increased K-12 spending by $244 million in Fiscal Year 2016, which was only about one-third of the level deemed necessary.

More investment in education increases student outcomes and future success. A 2015 report by professors at Northwestern University and the University of California, Berkeley assessed the long-term impacts of increased public investment on elementary and secondary education. The research finds that a 10 percent increase in spending, on average, leads children to complete 0.3 more years of schooling, improves their future wages in the labor market by 7.3 percent, and reduces their chances of living in poverty once they hit adulthood by 3.7 percent. Thus, increasing funding to Illinois’ public school districts would make a significant difference in the future success of Illinois’ students.

There are alternative policies that can be enacted at both the state- and local-level to enhance revenue for public education in Illinois. A new report by the Illinois Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois identifies six potential ways to increase revenue for public school districts:

1. Raise the Individual Income Tax: Raising the individual income tax rate to 5 or 6 percent would generate between $4 billion and $7 billion in additional revenue. If Illinois were to dedicate 0.5 percentage point of the new revenue to education, the State would receive $1.6 billion in additional revenue to support public schools and universities every year.

2. Introduce a Progressive Income Tax: Amending the Illinois Constitution to allow a graduated income tax and dedicating a portion to education would generate billions in additional school funding. The “Millionaire’s Tax,” for instance, would increase education funding by about $1 billion per year.

3. Expand the Sales Tax Base: Expanding Illinois’ sales tax base to include services – like neighboring states – and dedicating the increase to K-12 education needs would generate billions of dollars for education funding. Adopting Indiana’s sales tax rate and expanded base, for example, would increase revenue by $4.0 billion in Illinois.

4. Eliminate or Lower the Retailer’s Discount Rate: Illinois could reduce corporate welfare by lowering the allowance provided to retailers for collecting sales taxes, from 1.75 percent to the 0.50 percent rate used in Wisconsin, Michigan, and Texas. If the revenue was rededicated to education, school funding would be augmented by over $100 million a year.

5. Recoup Surplus Funds from TIF Districts: Surplus revenue from tax increment financing (TIF) districts could be re-allocated to support school districts, given the mixed track record of TIF districts. In 2015, Chicago had $1.4 billion in surplus TIF funds that could have been retrieved and used to support Chicago Public Schools.

6. Implement a Financial Transaction Tax: Over 30 countries have a financial transaction tax (FTT) in place. Senator Bernie Sanders and Congressman Keith Ellison have proposed an FTT for the United States. If Illinois were to implement a 0.1 percent FTT and dedicate revenue to education, the state could generate about $1 billion in new funding for schools. High-end estimates from an actual Illinois proposed “LaSalle Street Tax” bill were that the fee would raise between $10 and $12 billion a year.

Adding… Independent of the Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign, the Illinois Economic Policy Institute also adds that legalizing and and taxing marijuana could be an option to increase school funding.

7. Legalize and Tax Recreational Marijuana: In 2014, Colorado became the first state to tax and legalize recreational marijuana. During the campaign to legalize marijuana, proponents claimed that marijuana taxes would increase revenues by $70 million per year, with the first $40 million dedicated to school construction and the rest intended for law enforcement and the General Fund. Today, tax revenues have exceeded these projections. In Fiscal Year 2015-2016, marijuana taxes, licenses, and fees collected in Colorado totaled $156.7 million, and $42.5 million of these revenues were deposited into the Public School Construction Assistance Fund and the Public School Fund. Recreational marijuana is now legal in seven other states: Alaska, California, Maine, Massachusetts, Nevada, Oregon, and Washington. Based on data from Colorado and Washington, Illinois could raise between $212 million and $354 million in additional tax revenues every year by legalizing and taxing marijuana. Illinois could feasibly dedicate the first $150 million in marijuana tax revenues to fund schools and school construction.

Though not a comprehensive list of all alternatives, these potential revenue sources could help diversify education funding, allocate resources more equitably, and improve student outcomes in Illinois.

Click here for the full report.