HIGHLAND PARK, IL — Highland Park City Council members Monday joined representatives of more than 270 Illinois municipalities in opposition to Gov. J.B. Pritzker’s proposal to cut local governments’ share of income tax revenue by 10 percent. In his proposed budget for the coming fiscal year, which starts in July, Pritzker plans to cut about
HIGHLAND PARK, IL — Highland Park City Council members Monday joined representatives of more than 270 Illinois municipalities in opposition to Gov. J.B. Pritzker’s proposal to cut local governments’ share of income tax revenue by 10 percent.
In his proposed budget for the coming fiscal year, which starts in July, Pritzker plans to cut about $152 million from the Local Government Distributive Fund, or LGDF. The fund returns a portion of income tax collected by the state back to the municipalities where businesses and residents paid it on a per capita basis.
“These are income tax dollars that are appropriated by a municipality, derived from the residents of that municipality, with the caveat that that municipality can’t levy its own income tax,” Highland Park Mayor Nancy Rotering told Patch.
Rotering, who takes over Wednesday as president of the Northwest Municipal Conference, said state lawmakers make the job of local leaders more difficult by issuing unfunded mandates while simultaneous cutting off revenue sources. Leaders in many towns have already had to contend with decreased revenue this year amid the coronavirus pandemic, she said.
“It was a bit of a challenge already to try to meet the very real needs of our communities, but to then have the Illinois General Assembly and Gov. Pritzker say, ‘Well, you know what? Maybe we’ll take a little bit of this money because we want to fill gaps in our own budget,'” Rotering said. “It just doesn’t work.”
The Pritzker administration argues that localities will actually receive more revenue under the government’s budget proposal through changes to corporate tax deductions and other “loopholes.”
According to the governor’s representatives, Pritzker’s budget proposal will generate an estimated $228 million in additional funding for local governments, which comes out to $76 million more than the reduction in LGDF funding.
“Gov. Pritzker proposed a balanced budget that is a responsible plan and makes the vital investments in agencies on the front lines of the pandemic response like public health, healthcare and family services and employment security,” spokesperson Jordan Abudayyeh told Patch in a statement. “The Governor looks forward to working with the General Assembly to pass a balanced budget that lifts up working families who have suffered amid this pandemic and that continues to rebuild our economy.”
But Rotering said state funds like the LGDF have been set up for a reason, and it is wrong to use “crazy math” to shift resources away from their intended purpose. The estimates of increased local revenue for municipalities is far from a done deal, and comparing them to reliable revenue from an established fund is like “apples and oranges,” she told Patch.
“Let’s see the state go forward and accrue those revenues from those other sources, but in the meantime don’t take down cities in the process,” she said. “The state obviously has significant financial challenges. Leave the municipalities’ money out of it. Let us have the revenues that are due to us and continue working on other opportunities for revenue for the state.”
The LGDF dates back to the creation of the income tax in Illinois, which was not permitted under the state’s 1870 constitution. In the 1930s, the state supreme court blocked an effort to establish a progressive income tax.
In 1969, with a constitutional convention on the horizon, Republican Gov. Richard Ogilvie and Richard J. Daley, the Democratic mayor of Chicago, brokered a deal that established a flat 2.5 percent income tax on individuals and a 4 percent tax on businesses.
The 1970 Illinois Constitution later codified the state’s flat tax, which currently stands at 4.95 percent for individuals and 7 percent for corporations. It also forbids local governments from establishing their own income taxes.
From 1969 to 2011, the state returned 10 percent of the money collected to the cities, villages and towns where the money was collected through the LGDF.
In 2011, state lawmakers temporarily raised the state income tax but decreased the share devoted to municipalities to ensure the increased revenue went to the state.
The local governments’ share was cut again when the state income tax was permanently increased in 2017. As of the fiscal year ending in June, local governments receive 6.06 percent of income tax revenue from individuals and 6.845 percent from corporations.
In November 2020, after more than 53 percent of Illinois voters rejected a constitutional amendment that would have permitted a progressive income in the state, Pritzker warned “painful” cuts or income tax hikes would be needed.
LGDF funding can account for between 10 percent and 20 percent of a municipality’s operating budget, according to a resolution approved unanimously Monday by the Highland Park City Council. Highland Park stands to lose about $240,100, or 0.3 percent of its total revenues, according to City Manager Ghida Neukirch.
Orland Park Mayor Keith Pekau said his village expects to lose about $400,000 in revenue from the LGDF. That comes out to about 0.25 percent of the $151 million in revenue expected this year.
“Because [state officials] cannot balance their own budget, they are balancing it on the backs of municipalities,” Pekau said last week, “which really means they are balancing it on the backs of you.”
Some state lawmakers have sought to restore local funding to the full 10 percent of income tax revenue.
“I have spent close to three years in the Illinois Senate working to get LGDF funding back up to 100% where it belongs,” State Sen. Donald DeWitte, a St. Charles Republican, said last week in a statement.
“These LGDF dollars are municipal funds,” DeWitte said. “They are not overflow funds that can be used to fill state budget gaps. Our municipalities are struggling, and they rely on LGDF funds to balance their own budgets.”
Many Illinois municipal leaders are lobbying their constituents to contact their state legislators in an effort to block the reduction in funding, which they said lead to higher property tax bills across the state.
Kevin Wallace, mayor of Bartlett and chair of the 275-member Metropolitan Mayors Caucus, said LGDF money guaranteed to local governments is responsible for funding essential services like public safety, maintaining infrastructure and collecting garbage.
“LGDF is money that comes from our individual municipalities and has been generated by local residents,” Wallace said. “It legally belongs to our communities – not as a bailout for state government.”
State lawmakers are facing a deadline of the end of the month to approve a budget with a simple majority in both chambers. After May 31, a supermajority is required.
“When you look at cities across Illinois, they’re disparate in terms of their ability to raise revenue. Some have major corporations, some have major retail bases, others don’t have that kind of base,” Rotering said.
“There are very real costs that need to be addressed every single year by municipalities, and if they can’t cover those cost with dependable revenues, such as the LGDF, then they have to figure out where else that money is going to come from,” the mayor added. “Quite often it’s through increased property taxes, which nobody wants to do. We’re already recognizing that the property tax base is stretched, so it places an unfair burden, disparately, on different municipalities.”