This coming November, our neighbors to the east will face an interesting choice when they head to the polls. In 2008, the Indiana General Assembly implemented a statewide property tax cap, prohibiting local governments from hiking property tax bills by more than 1 percent of the assessed value of homes, 2 percent of rental properties, and 3 percent of business properties. It's estimated that the move will save property owners statewide $404 million in fiscal year 2010. Sensing the electorate's appetite for low taxes during these tight economic times, the Indiana General Assembly passed a proposed constitutional amendment last month that would make permanent the recently-implemented cap. Recent polling shows that 64 percent of voters favor the amendment.

A similar policy, if proposed in Illinois, would probably be just as popular, of course. In 2007, the Tax Foundation found that local and state governments in Illinois took in $1,600 per capita in property tax receipts, the ninth highest collection level in the nation. And it continues to rise.

To understand why the property tax burden is getting worse here, it's worth remembering some basics about the system.

A homeowner's tax bill is based on the assessed value of their property multiplied by the tax rate, which is based on the amount of revenue local taxing bodies (cities, school districts, parks, transit agencies) need to function. To ease the burden, the state allows residential property owners to claim a homeowner's exemption, which is a set amount that is deducted from a home's value before the tax bill is calculated. But when the law renewing the policy passed in 2007, House Speaker Michael Madigan (D-Chicago) insisted on a tiered, temporary approach that ultimately lowered the deduction to $20,000 in 2009. This year, it drops to a mere $6,000. As a result, homeowners watched their assessments spike last year, even in the midst of the worst recession in decades. Cook County homeowners and businesses saw a median 4.2 percent jump in the second half of 2009.  In Chicago, the burden grew even larger, especially on those who could least afford to pay. And while Cook County Assessor Democratic nominee Joe Berrios claims he wants to re-institute the higher exemption, he is also a close ally of Speaker Madigan.

Implementing a firm property tax cap without ensuring new revenue is available can lead to cuts in service, to be sure. In Indiana, some local governments have already sliced budgets for fire, police, schools, and other local services.

But before anyone in Illinois starts thinking about similar caps here, there are two other legislative approaches to lowering the property tax burden that should be considered: tax increment financing (TIF) reform and a modernization of the state's income tax system.

We've repeatedly explained how TIF districts drive up property taxes, but here's a brief reminder. Every time local governments create another TIF district to repair blight (or reward connected interests), revenue that would otherwise pay for schools, parks, and other public bodies is diverted into the city's TIF budget. In Mayor Daley's case, it's over 90 percent of his total tax bill. Those taxing bodies then have to raise their own tax levies to make up the difference. The Property Tax Reform & Relief Task Force has already recommended that the General Assembly review the state's TIF statutes. If action is taken to rein in the TIF network -- particularly in Chicago, where it has grown wildly under Mayor Daley's stewardship -- local officials won't need raise rates nearly as often.  Indeed, the Reader's Ben Joravsky offered a clear plan back in 2007:

[I]t's time to attack the [property tax] problem from the other end and cut the tax rates by cutting the budget. Let's start with TIFs, which divert about $400 million a year (and rising) in property taxes to slush funds controlled by the mayor and individual aldermen. Don't adopt any new ones, and cut off the flow of money to those that already exist once they've served their purpose.

Broader tax reform at the state level would also keep property taxes in check. Illinois' flat income tax rate, combined with an outdated system for taxing goods and services, means the state relies far too heavily on property taxes to fund schools and social services. It's unfair and extremely regressive. (The lowest 20 percent of Illinois income earners face a higher tax burden than their counterparts in 45 other states.)  In addition to expanding the state's revenue base, the current version of HB 174 -- a tax reform measure passed by the Illinois Senate last summer -- would double the state's property tax credit, from 5 to 10 percent. Once the deficit is addressed, the extra revenue would eventually funnel into schools as well, providing local officials with the ability to lower property tax rates if they feel their schools are adequately supported.

With outrage growing over the latest round of tax bills, Illinois lawmakers would be foolish to ignore such proposals this year.