PEORIA -- Harry Canterbury is a native Peorian who's not happy with what he's seen happen to the city.
Canterbury, the former owner of Adventure Sports Outdoors, the fishing-hunting publication, recently purchased a home in Port Charlotte, Fla.
"This was a great community. Now it's overtaxed, suffers from high crime and there's no place to work. It breaks my heart," he said.
Canterbury sees taxes as a growing problem here. "They've got a hotel tax, sales tax, flush tax and now a rain tax," he said, referring to Peoria's new stormwater utility fees.
"We (Peorians) have high property taxes, and they can't even fix the roads."
Taxes in Illinois
The fact that Illinois residents are heavily taxed isn't a secret. WalletHub, a national personal finance service, recently ranked Illinois as 51st in the nation in terms of the severity of its overall tax burden -- that's last among the 50 states and Washington, D.C.
According to WalletHub, the state and local tax on an Illinois household earning the median U.S. income is 14.89 percent, the highest in the nation.
The median Illinois household pays $8,330 in taxes annually -- not counting federal taxes. Among Midwestern states, Wisconsin is next at $7,193. But the tax burden on median households is almost 40 percent higher in Illinois compared to most of its neighbors, states WalletHub.
The Tax Foundation lists Illinois as having the second-highest property taxes in the country, second only to New Jersey.
The news isn't much better on the business side. Earlier this year, the Anderson Economic Group ranked Illinois 35th in the nation in how much businesses pay in state and local taxes. That's down from 32nd last year and 25th four years ago.
How does Peoria compare?
"Peoria taxes are higher than most cities outside of Cook County," said Bryce Hill, a research analyst with Illinois Policy Institute, a think tank with offices in Springfield and Chicago.
"Peoria's property tax rate -- 2.6 percent -- is among the highest in the nation. Peoria is also losing population. That means fewer people are being asked to pay the property taxes," he said.
"The average sales tax -- 9 percent -- in Peoria is also higher than most Illinois cities outside of Chicago."
So where does Illinois go from here?
Peoria City Manager Patrick Urich, who's wrestling with a possible $6 million shortfall in the city budget for 2019, sees the challenge facing state legislators.
"The Illinois General Assembly has its work cut out. The state's reliance on property taxes, high corporate income taxes, and a narrow sales tax base all play a part in hurting the business climate in Illinois," Urich said. "Compounding this is the pension issue at state and local levels and the disruption in retail sales caused by online shopping."
Relying on sales taxes has become more important for communities like Peoria due to the fact that 80 percent of what the city receives in property taxes now goes toward paying pensions, predominantly to retirees with police and fire departments, said Urich.
"For several years, the city has recommended to our legislative delegation that they expand the sales tax base to services. This would increase sales tax collections and possibly, the state could also lower rates," he said.
"Illinois has a very narrow sales tax base, and thus relatively high rates," said Urich, referring to the fact that other states may have lower sales tax rates but tax more services than Illinois does.
"The other area we have advocated for is pension reform. While we have focused on public safety pension reform at the local level, the state certainly needs to address it at the state level as well," he said.
"If the state could lessen the reliance on property taxes as well, we would certainly see an uptick in business investment in Illinois," Urich said. "With schools primarily funded from property taxes, the General Assembly would have to find a new way to fund schools."
Sales tax problems
With property taxes already high, communities have increasingly come to rely on sales taxes. John Amdall, who retired as head of technology for Caterpillar Inc., has researched the dependence of central Illinois communities on sales taxes to fund government services. East Peoria derives 71 percent of government revenue from sales taxes while Peoria uses sales tax to fund 41 percent of its operations, he said.
Other communities with a reliance on sales tax revenue include Morton (38 percent), Washington (34 percent) and Pekin (31 percent).
But Amdall, who attended a recent shop-local news conference in Peoria with his wife, Sharon, believes that local governments may see a 50 percent drop in sales tax revenue over the next 10 years.
The reason is the rapid growth of online shopping. Even local big-box stores encourage online sales, he said. "In some stores we have visited, they have a section at the front of the store to pick up online sales," said Amdall.
"The problem with the online sales is that the home-rule cities (Peoria, East Peoria, Washington, Pekin, Morton, Peoria Heights, etc.) receive essentially zero sales tax revenue from online sales because of the way the state distributes the sales-tax revenues," he said.
"What is even worse, is that, if you buy online from one of the local big-box stores, you only pay 6.25 percent sales tax. The home-rule cities receive next to nothing. If you buy the same item in the same big-box store, you will pay 8 to 10 percent sales tax, depending upon the location, and the local city receives its full home-rule sales tax. You can actually buy the same item online, pick it up at the store, and pay less than if you went into the same store to buy the same item. Something is terribly wrong," said Amdall.
How to fix Illinois
Jim Nowlan, a former Illinois legislator and co-author of the 2014 book, "Fixing Illinois," said one of the reasons that taxes take up more of the personal income than they used to is a dramatic growth in health care costs. "There are about 3 million people in Illinois on Medicaid. That's almost 25 percent of the state's population," he said.
While states such as Indiana and Iowa get about 63 percent of Medicaid funding from the federal government, Illinois only gets about 50 percent, said Nowlan. "Covering that cost puts more of a burden on the state," he said.
Nowlan said another tax problem for Illinois towns results from the fact that state funding for schools has decreased in recent years.
"The state has gone from about a 40 percent share to paying less than 30 percent," he said. "That puts a burden on local communities."
"There are lots of ways to slice and dice the state's tax situation," said Nowlan. While aware that Illinois residents have a higher tax burden than most states, Nowlan, whose regular column appears in newspapers across the state, offers a possible solution to the state's financial woes.
"If we had the courage to broaden the sales tax to include many services, reimpose the tax on retirement income (excluding Social Security, and the equivalent income of pensioners not covered by Social Security), and eliminate a host of exemptions, we could generate more than $12 billion, without increasing any tax rates, also balance the budget -- and reduce local property tax bills by one-third," he said.
Nowlan suggests that $10 billion of the $12 billion raised in his plan would replace some of $30 billion paid annually in Illinois property taxes.
"Economists would call this dramatic property tax reduction regressive because most of the benefits would go to folks with above average income, and it would provide a windfall to property owners, who might see property values climb. Yet what a boost to our struggling economy," he said.
But Nowlan is enough of a political realist to understand that such a sweeping plan isn't likely in a state that haggled for two years without a budget of any kind.
"There are no giants today like one-term Gov. Thomas Ford (buried in Peoria's Springdale Cemetery)," he said. "Facing state default (in the 1840s), Ford induced a highly reluctant Legislature into paying off fully, and painfully, holders of massive state bond debt, thus opening the state for equally massive Eastern investment."
While acknowledging that Illinois needs to get its financial house in order, Rockie Zeigler, an independent financial planner in Peoria, sees support for the fact that Illinois does not tax pension income and retirement plan distributions.
"A good majority of new clients I come across seem to realize this now which is a good thing," Zeigler said. "And no, it would not surprise me if Illinois began to tax retirement income in the future."
Peoria developer Kert Huber believes that the solution to falling sales tax revenue could be a national internet sales tax. "Have the federal government collect it and distribute it to the states," he said.
Jeff Kolbus, president of RE-MAX Traders Unlimited, understands the importance of tax issues. "When people look to relocate in an area, regardless of the cost of their home, they look at the property taxes," he said.
While taxes are high in Illinois, Kolbus doesn't go along with a gloom-and-doom approach.
"This community received a gut punch in 2015," he said, referring to news of extensive layoffs by Caterpillar.
Despite news that followed -- Caterpillar moving its headquarters out of town -- Peoria has proved resilient, said Kolbus. "The real estate market is up over the past 12 months. People are investing in our community," he said. Kolbus explained that the average time it takes to sell a home in the Peoria market has gone from seven months to five-and-a-half months.