Illinois’ municipalities are, again, on the watch for a potential reduction of their promised share of state revenue if lawmakers choose to use a tool they’ve utilized multiple times before to help shore up the state budget.
The state collects income tax and other types of revenue for municipalities and distributes it via the Local Government Distributive Fund. Until 2011, local governments received 10% of the personal and corporate income tax revenue but that was slashed to 5.45% for personal income taxes and 6.16% of corporate income tax collections to help the state fill a budget hole from the recession. Both of the last two income tax increases saw proportional reductions in the LGDF.
As it stands, Illinois is set to deliver municipalities 6.06% of personal income tax collections and 6.845% of corporate tax revenue but Illinois Municipal League President Brad Cole says that could change.
“We’re always concerned about LGDF as the local share of state income taxes,” he said. “There are only so many places where the General Assembly and the governor can go to make reductions and we’ve seen that LGDF is one that comes out, usually, at the front of the line as a place where they can make cuts.”
Illinois lawmakers must figure out how to not only fill a budget hole as deep as $5 billion but also pay for debt incurred in 2020.
The consequence of reducing local government’s share of state revenue isn’t just reductions in local services, Cole said, but higher property taxes.
“Every dollar that gets cut from LGDF or that is reduced from local funding has to be made up somewhere else if those programs are going to be retained and that means increases in property tax,” he said.
Rockford Mayor Tom McNamara said the state’s all-too-often taken the “easy way out” in terms of balancing their budget while also sending local governments more unfunded mandates.
“They put all of these burdens, in the form of unfunded mandates like choosing pension benefits, and then tell us we have to cash the checks that they wrote,” he said. “They cut our funding through the Local Government Distributive Fund and then say ‘I don’t know why our local governments have such high property taxes.’”
Gov. J.B. Pritzker is set to give his budget proposal in February. It is not clear if that could be affected by the legislature's decision cancel all but one session day due to COVID-19 concerns. Illinois’ new fiscal year begins July 1.