Illinois’ new governor, Bruce Rauner, during a speech on the state’s budget, Feb. 18, proposed cutting the amount of state income tax revenue returned annually to municipalities, a move that could have crippling effects on local operating budgets.
According to the Metropolitan Mayors Caucus, Rauner wants to reduce the local share of the state income tax by 50 percent, in effect shifting the state’s fiscal problems onto local governments.
The governor’s proposal drew swift reaction from municipal leaders, such as River Forest Village President Catherine Adduci, a member of the Illinois Municipal League’s Legislative Committee.
“Reducing the local share of income tax would be crippling without reforms. You cannot just wipe out $600,000 without additional reform,” Adduci said. “Why not eliminate unfunded mandates like minimum manning and also reform police and fire pensions. Don’t punish us because we’re efficient. Don’t balance the state budget on the backs of local municipalities.”
What would the impact be on municipalities? If this provision were to make it through the Illinois General Assembly and then to Gov. Rauner’s desk, it could mean a loss of as much as $700,000 to Forest Park, about $3.125 million to Oak Park, and $600,000 to River Forest.
To give a sense of what that kind of money would mean to local governments, in Forest Park, it represents the salaries of four members of the fire and police departments. The loss for Oak Park would represent around 40 percent of the general operating revenue for the Public Works Department. The money River Forest could lose represents two-thirds of the funds it will spend this year on contributions to the fire pension fund.
After hard economic years and cost-cutting, brought on by the recession, Forest Park, Oak Park, and River Forest have begun to see some improvement in their bottom lines. Oak Park Village Manager Cara Pavlicek said the loss would be significant, but she’s cautious, saying it’s too early to answer all the questions about its impact.
“We will see how the process goes, understand the details and when and if there’s legislative action; then staff will be prepared to talk about options,” she said.
While River Forest and Forest Park have not yet completed budget preparations for the upcoming fiscal year, losing that kind of revenue may force them to find other avenues to cover their operating budgets.
According to Village Administrator Tim Gillian, Forest Park would be hard-pressed to find alternatives, considering that it is a non-home-rule municipality. Non-home-rule communities do not have the authority to raise taxes without going to referendum.
“It’s irresponsible — and frightening — to do away such a large portion of the village’s revenue with a stroke of a pen,” Gillian said. “The governor has been in office a month and he cannot possibly have a good handle on what that money represents. Every resident in Oak Park and River Forest and Forest Park needs to understand and listen that this is a really big deal.”
Specifically, Rauner is proposing to cut money municipalities get from what is called the Local Government Distributive Fund, which was established in 1969 as part of the state’s income tax law.
The state collects a portion of the income tax on behalf of local municipalities and then distributes it back to local governments on a per capita basis. According to the Metropolitan Mayors Caucus, Rauner wants to cut $600 million from the amount the LGDF returns to local governments.
“Towns have counted on that money for the past 45 years,” said Dave Bennett, executive director of the Metropolitan Mayors Caucus. “A 50 percent sweep is going to reduce revenues that are needed to pay for local services. To offset that much, towns will look at reducing staffing, delaying projects or raising taxes.”
Municipal leaders, meanwhile, don’t view the LGDF as state largesse. Rather, they view the municipal share as belonging to local taxpayers. The state merely collects the money, they say; municipalities are entitled to it.
At the same time, Rauner also called for a general property tax freeze in his budget address. That proposal fell flat with local leaders, who said by taking away LGDF revenues, it may force local governments to raise property taxes to make up for the loss.
“Freezing taxes will just force municipalities to raise taxes on homeowners,” said state Rep. LaShawn Ford (D-8th), who represents Oak Park. “There will be no tax freeze. It will just put local municipalities in a pickle.”
Don Harmon (D-39th), president pro tempore of the state Senate, worries that Rauner’s plan would lead to imbalanced budgets for families throughout the state.
“It’s going to create great pressure to increase property taxes, result in higher college tuition costs and make it more difficult to go to work on the el or the Metra. It’s a really risky proposition to try to balance the state budget by shifting costs to middle-class families across Illinois,” Harmon said in a statement.
While local officials on the local level decried Rauner’s proposal regarding the LGDF, they were not surprised by it. Pavlicek said this type of cut has been proposed a number of times. Gillian agreed, but said it was unrealistic to “arbitrarily slash it at a time when communities are starting to see the light after the Recession.”
Kimberly Lightford (D-4th) the Senate’s assistant majority leader, said the Governor’s budget proposal did not outline a responsible and compassionate path forward.
“It is vital for any state budget to strike a balance between common-sense funding necessities for those who need critical services and ensuring that Illinois is fiscally sound and competitive. To achieve a competitively and compassionately balanced budget, Illinois must focus on jobs, education options, services, and above all, people. … This is not a balanced or feasible approach,” Lightford said in a statement.
