(The chart shows State income tax payments to local governments from FY2008 to FY2013 and the Governor’s recommended payments for FY2014. The amount of State income taxes shared with local governments remains below its pre-recession level of $1.208 billion in FY2008. Chart and caption by the Civic Federation.)
Wednesday, July 30, 2014 || By Michael Romain
Municipalities claim Illinois already underpays them their share of state income tax revenue–on top of that, Springfield is chronically late with the payments
The State of Illinois owes the Village of Maywood $135,626.70, according to the Illinois Municipal League’s Late Payment Calculator. State law entitles municipal and county governments to a share of state income tax money through the Local Government Distributive Fund (LGDF). The money is apportioned by population size and distributed to the local governments by the Illinois Comptroller. Those governments, in turn, get to use the money to cover general operating costs.
But according to the Illinois Municipal League, the state has “consistently delayed forwarding LGDF to municipalities from anywhere between three to six months.” For an understanding of the significance of state income tax receipts to Maywood’s general operating activities, consider that in FY2012–the most recent fiscal year for which the Village has provided detailed information on its financial operations–Maywood received $2,320,689, according to data obtained by the Illinois Comptroller’s local government Warehouse.
Before 2011, 10 percent of state income tax receipts that were supposed to be set aside for use by municipal and county governments. After the state enacted its temporary income tax (which raised state income tax rates from 3.75 percent to 5 percent and corporate income tax rates from 5.25 percent to 7 percent), the percentage of the income tax allocated to municipal and county governments was changed to 6 percent of the individual income tax revenue and 6.86 percent of the corporate income tax revenue, based on reporting by the nonpartisan Civic Federation. The change reflected the state’s intention of keeping local governments’ portion of the increased revenues at the level it was at prior to the temporary income tax increase increase.
The state’s desire to keep the increased revenue that would result from the temporary tax increase had mayors across the state up in arms when the idea was proposed in 2011. At the time, the Metropolitan Mayors Caucus, which represents more than 270 municipalities across metropolitan Chicago (including Maywood), said the reduced percentages amounted to a “stealth tax” on local governments. The Mayors Caucus claimed that even before the reduced percentages were enacted in 2011, local governments were experiencing reduced revenues from state income taxes–both as a result of the depressed economy and due what it claimed was the state’s tendency to underestimate its annual income tax revenues.
According to the Civic Federation, last year, after Gov. Quinn released his proposed FY2014 budget, the Illinois Municipal League estimated that local governments would lose about $148 million. That figure doesn’t include the amount of lost revenue that the League forecast would be a result of the Governor’s office underestimating tax receipts.
In an analysis conducted last month, the Civic Federation stated that the lost income tax revenue, in addition to the state’s chronic delay in paying out the revenue, “has caused serious budgetary problems for local governments that have come to rely on the income tax as an important revenue source for balancing their budgets. For example, in 2010 and 2011, the State delayed payments to the City of Chicago for an average of 120 days.”
“House Bill 0961, which was recently passed by the Illinois General Assembly and is awaiting the Governor’s signature, would require the State to transfer income tax revenue to the Local Government Distributive Fund within 60 days. This legislation will help to ensure that municipalities and counties receive their share of the income tax in a timely manner and would allow for the local share of the income tax to be a more predictable source of revenue throughout the budget year.” VFP