Illinois’ new governor, Bruce Rauner, proposed during a speech on the state’s budget on Wednesday cutting the amount of state income tax revenue returned annually to municipalities, one 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, saying the governor wants to shift the burden of the state’s fiscal problems onto local governments.
What would such a cut mean locally? If the provision were to make it through the Illinois General Assembly and onto the governor’s desk, it would mean about $835,000 in revenue disappearing from the village of Brookfield’s operating budget. Riverside would take a hit of more than $430,000. North Riverside would lose about $250,000.
To give a sense of how much that kind of money means to local governments, Riverside’s annual contribution to its police pension fund is a little more than $500,000. Brookfield, meanwhile, has budgeted about $1.2 million annually for road repairs. The amount potentially lost by North Riverside is enough to fund one-third of the village’s annual fire pension obligation.
If the villages were forced to find other sources of revenue for those kinds of line items, it would likely mean service cuts in other areas of their budgets.
“I understand that the state is in a tough financial spot, and I understand that Governor Rauner wants to fix it,” said Brookfield Village President Kit Ketchmark. “But the last time I looked, the residents of Brookfield were also part of the state of Illinois. If they take $800,000 from Brookfield, aren’t we hurting the people of Brookfield?”
North Riverside Mayor Hubert Hermanek Jr. agreed.
“It would be devastating for the municipalities,” said Hermanek. “They’re trying to balance their budget at the expense of municipalities and it’s counterproductive.”
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.
“Governor Rauner’s proposal to take money out of the pockets of local taxpayers grossly distorts the true purpose of the local government distributive fund,” said Riverside Village President Ben Sells. “That money belongs to local government — it is not a gift from the state. The governor’s proposal should be seen for what it is, a direct reduction of public services to the residents of towns and villages all over Illinois.”
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 North Riverside and a portion of Brookfield. “There will be no tax freeze. It will just put local municipalities in a pickle.”
Sells called Rauner’s proposed cuts in state shared revenues a tax hike for any municipality that wished to maintain current services to local residents.
“His proposal would amount to a 12-percent increase in property taxes in Riverside for the village to maintain its current level of services,” Sells said. “The governor says he wants to be honest with the citizens of Illinois. If so, then he should make clear that taking money away from local governments that is rightfully theirs will mean reduced public services and degraded public facilities and infrastructure.”
While local officials on the local level decried Rauner’s proposal regarding the LGDF, they also were not surprised by it. Throughout the 2014 campaign and since taking office, Rauner has clearly signaled that he wants to change the way the state functions financially.
“While the speech was a lot to digest, it shouldn’t have been a surprise to anyone,” said state Rep. Michael Zalewski (D-23rd), a resident of Riverside, who signaled his expectations early Wednesday morning via Facebook.
“I’ll be the guy wincing as he drives down 55 this morning,” Zalewski posted.
At the same time, he and others cast doubt on whether Rauner’s proposal, particularly related to the LGDF reduction, would ever make it to the governor’s desk for a signature.
“A lot of what he proposed is simply not going to pass muster in the General Assembly,” Zalewski said. “Too many people are relying on us for the LGDF. I know mayors view it as almost sacrosanct.”
State Sen. Steven Landek (D-12th), who represents parts of Riverside and Brookfield, characterized Rauner’s proposals as bargaining chips, saying the process of hashing out the next fiscal year budget is still a long way off.
“That’s his plan,” said Landek, who as mayor of Bridgeview also counts on LGDF revenues to fund his municipal budget. “Somewhere in the middle there will be a compromise. I’m not getting too excited at this point. I’m optimistic we’ll find a resolution and put the state on better [financial] footing.”