An annual January ritual, as Illinois lawmakers gather in Springfield to begin a new legislative session, is the search for another basket of politically safe but invariably business- and citizen-unfriendly tax and fee increases to support their bloated government bureaucracies.
That sad scenario is also a perfect opportunity to refloat an idea that needs to emerge in the rarefied Capitol air.
Taxes in Illinois on income, sales, real estate and everything else are higher than 47 of the 50 states, with exorbitant property taxes easily the most onerous.
But what rarely makes it into the script is a serious conversation about who doesn’t pay property taxes and why that sacred cow should finally be led into the policy barn.
Illinois grants broad property tax exemptions to nonprofit universities and medical institutions. In theory, that makes sense. These entities serve the public good. But times have changed, and many have become giant profit centers and some of the wealthiest and most powerful landowners in the state.
Northwestern University, the University of Chicago, Rush, Northwestern Medicine and others sit on billions of dollars in tax-exempt real estate while surrounding neighborhoods and local governments strain to fund basic services and the rest of us face ever bigger tax bills.
It’s time for the Illinois legislature to take a hard, grown-up look at whether blanket property tax exemptions for these mega-institutions still make sense or whether they should pay a fair share of property taxes, reducing the excessive load on every other taxpaying business and resident.
To be clear, this is not an attack on higher education or health care. These institutions do extraordinary work. They educate students, conduct world-class research, employ tens of thousands of people and save lives.
But they are also sophisticated corporate enterprises with massive endowments, expansive real estate portfolios and executive compensation packages that would make some Fortune 500 CEO’s blush.
Northwestern’s endowment hovers around $14 billion. The University of Chicago, roughly $11 billion. These universities aggressively acquire property — often removing it from local tax rolls forever — while expanding their hospitals, research parks, hotels and commercial ventures that look, feel and operate very much like for-profit businesses.
Meanwhile, who pays for the police and fire protection that safeguard those campuses? Who maintains the streets, sewers and transit lines that serve their students, patients and employees? Who picks up the tab for the public schools educating the children of their workforce?
You already know the answer: everyone else.
Homeowners in Evanston, Hyde Park, Streeterville and the Near West Side pay higher property taxes because enormous swaths of prime real estate are exempt. Small businesses pick up more of the load. Local governments either raise taxes, cut services or — more often — do both.
This is not just a Chicago problem. Across Illinois, hospitals and universities are often the largest landowners in their communities, yet contribute little or nothing directly to the property tax base. The burden shifts downward, hitting working families and retirees on fixed incomes the hardest.
Some defenders of the status quo argue that nonprofits already “pay back” communities through charity care, scholarships and economic activity. That argument deserves scrutiny.
First, charity care standards are often opaque and inconsistent. Second, scholarships and research benefits flow disproportionately to students and patients who are not local taxpayers. Third, economic activity is not a substitute for predictable revenue that local governments can budget against.
Other cities and states have figured this out. Boston, for example, uses “payments in lieu of taxes,” or PILOTs, to require large nonprofits to contribute to municipal services. They’re not perfect, but they acknowledge a basic reality: Services cost money, and everyone benefiting from them should help pay the bill.
Illinois lawmakers should consider a similar approach — one scaled to institutional wealth and footprint. No one is suggesting taxing classrooms or charity wards like luxury condos. But research labs, administrative towers, medical office buildings, parking garages and revenue-generating facilities are fair game for a serious reassessment.
The legislature could set thresholds based on endowment size, operating revenue or property holdings. Smaller nonprofits could remain exempt. The biggest players — those with billion-dollar balance sheets — could contribute proportionally.
And let’s dispense with the idea that this would somehow drive these institutions out of Illinois. Northwestern isn’t packing up in Evanston. The University of Chicago isn’t relocating from Hyde Park to Indiana. These institutions are rooted here because Illinois and Chicago are integral to their brand, talent pipeline and mission.
What this debate really comes down to is fairness. Illinois cannot continue to squeeze homeowners and small businesses while shielding some of the wealthiest institutions in the state from contributing to the communities they dominate.
It’s driving other struggling businesses and residents out of Illinois and discouraging outsiders from relocating here.
Springfield loves to talk about “shared sacrifice.” Here’s a chance to mean it.
The question for lawmakers is simple: Will they keep protecting a tax structure that no longer reflects economic reality or will they finally ask powerful nonprofits to help carry the load in a state that desperately needs a reform such as this?
If Illinois is serious about stabilizing local finances and restoring trust in government, this conversation can’t be postponed another decade. The exemptions may be traditional. They are no longer sustainable.
Andy Shaw is a retired Chicago journalist and good government watchdog.
Submit a letter, of no more than 400 words, to the editor here or email letters@chicagotribune.com.
