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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.”

Mayor Daley and other mayors publicly opposed the 2011 income tax increase, so municipalities didn’t get a cut of the new revenues. Hey, they said the money wasn’t needed.

So, just saying, but maybe the mayors and county board chairs should start lobbying legislators to pass the governor’s $500+ million decoupling bill because I’m starting to hear that LGDF is where the shortfall could be made up if it fails to pass.

posted by Rich Miller
Thursday, Jan 28, 21 @ 1:49 pm

Comments

  1. LGDF has always been the obvious source of cuts. The republican state reps from areas had to be aware they were playing with fire in opposing the income tax increase, but either didn’t think far enough ahead to see the eventual outcome or thought it wouldn’t happen on their watch.

    In small towns, the budget is about 29% made up of state funding that comes from the LGDF. The smaller the town, the larger the share of the local budget comes from LGDF.

    Every 1% cut to the current LGDF distribution would require a 3% increase in local property taxes.

    None of the opposition wanted to identify where cuts were coming from, because they knew exactly where it would be coming from and chose to sacrifice their local areas for political posturing.

    I hope the voters remember this when the consequences arrive.

    Comment by TheInvisibleMan Thursday, Jan 28, 21 @ 2:00 pm

  2. @TheInvisibleMan

    Maybe the Municipalities shouldn’t have let the State negotiate away their ability to impose local income taxes in exchange for the creation of the LGDF back when they were negotiating the 1969 State Income Tax (and the 1970 State Constitution). If the dirty deal with Old Man Daley is going to lead to local govt’s getting hosed 50 years after the fact, it might be time to take a look at it again (or pass bills permitting local income taxes).

    Comment by Just Another Anon Thursday, Jan 28, 21 @ 2:07 pm

  3. ==Every 1% cut to the current LGDF distribution would require a 3% increase in local property taxes.==

    That’s a false choice. Municipalities can, and should, consider cutting costs before raising taxes.

    ==I hope the voters remember this when the consequences arrive.==
    Yup, I will remember if my city council cut waste or increased my taxes, and will vote accordingly.

    Cheers

    Comment by SumGai1986 Thursday, Jan 28, 21 @ 2:17 pm

  4. The republican state reps from areas had to be aware they were playing with fire in opposing the income tax increase, but either didn’t think far enough ahead to see the eventual outcome or thought it wouldn’t happen on their watch. Or…the GOP can vote NO on everything and excoriate the Dems for their failures until November of 2022.

    Comment by AuH2O Thursday, Jan 28, 21 @ 2:32 pm

  5. ==Municipalities can, and should, consider cutting costs before raising taxes.==

    What should they cut, specifically.

    Funny how we always end up with the same vagaries.

    We can also adjust the IDOT funding percentages for STP-rural and STP-urban in the notice IDOT put out at the start of January this year.

    Then you can make the same statement about cutting locally to make up the difference for lost state funding.

    I usually have to travel to the southwest desert to see small ghost towns. Some people seem to be determined to create more of them in rural IL.

    Comment by TheInvisibleMan Thursday, Jan 28, 21 @ 2:39 pm

  6. === That’s a false choice. Municipalities can, and should, consider cutting costs before raising taxes.===

    LOL

    Revenue increase or decrease, easy to see.

    Cuts? Whatcha gonna cut?

    It’s not like these munis see the state money as “free money” in many instances.

    This isn’t a household deciding no “Chili’s” every Friday.

    === Yup, I will remember if my city council cut waste or increased my taxes, and will vote accordingly.===

    How about cut waste AND raise your taxes? lol

    Comment by Oswego Willy Thursday, Jan 28, 21 @ 2:42 pm

  7. It’d be really unfair to cut LGDF after all the hard work the mayors put in to try to pass the Fair Tax.

    Comment by Third Reading Thursday, Jan 28, 21 @ 2:53 pm

  8. ==Mayor Daley and other mayors publicly opposed the 2011 income tax increase==

    Did the initial tax hike legislation keep the LGDF percentage the same, but the mayors opposed, so the GA lowered it? Or did the initial legislation drop the LGDF percentage and the mayors opposed it?

    Comment by City Zen Thursday, Jan 28, 21 @ 2:59 pm

  9. Oh boy it would be great to be a mayor. Never have to get blamed for raising revenue but get to deliver all the services. “I haven’t raised property taxes in x years and I agree with you about that nasty fair tax.” Meanwhile they pilfer from schools with TIF funds and bemoan cuts to LGDF.

    Comment by JJJJJJJJJJ Thursday, Jan 28, 21 @ 3:10 pm

  10. I see absolutely no policy reason to continue with the LGDF as opposed to letting municipalities levy their own taxes.

    Comment by JJJJJJJJJJ Thursday, Jan 28, 21 @ 3:12 pm

  11. We have all benefited in some way from Illinois’ long-term fiscal mismanagement. To right the ship we will all have to pay. That includes munis. Zero out the LGDF every year until the state pensions are 90% funded.

    Comment by Sharing is Caring Thursday, Jan 28, 21 @ 3:25 pm

  12. The smart move would be to threaten to pass local government consolidation reform. That will really get the local pols to start lobbying.

    Comment by Chicagonk Thursday, Jan 28, 21 @ 3:28 pm

  13. Rich has pointed out the Cornelian dilemma faced by the mayors and county board chairs.

    If they lobby for the decoupling legislation, they will be lobbying for legislation that will directly and adversely affect their constituents who are organized as sole proprietors and partnerships and S corporations by disallowing losses at the state level that were authorized by the CARES Act and, unless changed, through the automatic federal conformity provisions of the Illinois Income Tax Act. (Remember the decoupling doesn’t affect anyone organized as a regular corporation - they were decoupled from the federal loss treatment years ago.) The businesses affected by the decoupling include the bars, restaurants and other businesses that have been hammered by the pandemic.

    If they don’t lobby for decoupling and Mr. Cole’s fear that the LGDF percentage will be cut, which I doubt will happen, actually happens the mayors and the county board chairs will have to decide whether and how to cut budgets or raise taxes to make up for the shortfall.

    Comment by Just the Facts Thursday, Jan 28, 21 @ 3:42 pm

  14. “should consider cutting costs”

    Still holding my ribs laughing so hard.
    Anna could cut enough to cover what the state doesn’t give them?

    I swear, you supply-siders will never give up on that con, will you?

    Comment by Flying Elvis'-Utah Chapter Thursday, Jan 28, 21 @ 3:45 pm

  15. The fair tax package, 101-0008, would have pushed the LGDF rates lower than they are now, even with the holdbacks, so local revenues would have been pretty flat. But mayors were short-sighted to oppose the fair tax— more robust state human services could have stepped up for residents–and dare we say, school funding increases could have eventually relieved pressure on local property taxes. And the state wouldn’t need to be coming with knives to cut the LGDF rates even further.

    Comment by pro bono Thursday, Jan 28, 21 @ 3:48 pm

  16. - JJJJJJJJJJ - Thursday, Jan 28, 21 @ 3:12 pm:
    I see absolutely no policy reason to continue with the LGDF as opposed to letting municipalities levy their own taxes.

    That may work out for Highland Park and Lake Forest but not so well for Harvey and Dalton.

    Comment by Dance Band on the Titanic Thursday, Jan 28, 21 @ 3:48 pm

  17. Third Reading is on a roll lately. Another one that made me literally lol

    Comment by Lurker Thursday, Jan 28, 21 @ 3:54 pm

  18. Most of the tax I pay is property tax to school districts, not municipal. Municipalities are free to raise their property taxes, but first should trim expenses where they can without jeopardizing safety.

    Comment by DuPage Thursday, Jan 28, 21 @ 4:34 pm

  19. ==should trim expenses where they can==

    Like what? Halve the amount of salt they put on sidewalks? Be specific or run for the county board.

    Comment by Jocko Thursday, Jan 28, 21 @ 7:06 pm

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