Elected officials in towns all over Illinois have worried for years that state government might seek to help balance its budget with money ordinarily earmarked for Illinois municipalities.
And with the override of the governor’s veto on July 6, the budget passed by the Illinois General Assembly is doing just that.
Written into the budget bill is a provision that calls for the state to collect what amounts to a handling charge of 2 percent from sales taxes imposed by local governments, including Brookfield, North Riverside and Riverside.
In addition, the local share of state income tax revenues is cut by 10 percent in the state’s 2017-18 budget, a move local officials have long feared might happen.
That has local leaders miffed. In Brookfield, North Riverside and Riverside, who have struggled to keep budgets balanced or close to it in recent years, officials see the state’s attempts to get their hands on municipal revenues as balancing the state’s budget on their backs.
“I know there was a lot of pressure for state lawmakers to [pass a budget],” said Brookfield Village President Kit Ketchmark. “But I wonder what they really accomplished. They forget that the towns are where people live. This has a direct impact on people.”
The state collects sales taxes from businesses across the state and then redistributes a portion back to municipalities on a monthly basis. While the handling charge won’t be applied to the general state sales tax, of which municipalities get a 1.25 percent cut, it is being imposed on a host of locally imposed sales taxes, like the non-home rule sales tax.
State Rep. Michael Zalewski (D-Riverside), who is chairman of the House Revenue and Finance Committee, said the 2-percent fee was an Illinois Department of Revenue initiative, as a way to recover administrative costs for collecting and then returning the locally imposed taxes.
“It’s effectively an administrative charge-back,” Zalewski said.
The non-home rule sales tax was approved by voters in Brookfield, North Riverside and Riverside about a decade ago and it imposes an additional 1 percent on all purchases made in those towns. The funds collected are, by state law, supposed to be used for public infrastructure improvements.
Depending on the municipality, the state fee for handling non-home rule sales taxes won’t be a crushing blow to the village budget. For example, Riverside collected $183,865 in non-home rule sales taxes in 2016. Had the fee been in place that year, Riverside would have lost out on roughly $3,700.
Brookfield, meanwhile, collected $647,858 in non-home rule sales taxes in 2016, which would have amounted to a state fee of about $13,000 had the provision been in place that year.
“It’s not a big dollar amount, but it’s getting a foot in the door,” said Ketchmark.
The local community that will take the biggest hit from the fee is, not surprisingly, North Riverside, whose commercial base dwarfs both Brookfield and Riverside.
North Riverside collected a little more than $4 million in non-home rule sales taxes in budget year 2015-16, the most recent data available. Had the 2-percent fee been in place that year, North Riverside would have surrendered almost $81,000.
“The truth of it is that it’s hard enough to balance a budget as it is,” said North Riverside Mayor Hubert Hermanek Jr. “It’s just another way the state is trying to get their claws on municipal funds.”
The sales tax handling charge isn’t the first time state legislators have floated ideas that would impact local revenue streams.
Gov. Bruce Rauner has proposed freezing property taxes throughout the state, something that would have no impact on the state’s budget at all, but would hamstring local governments, whose expenses are driven by employee contracts and the rising costs of capital improvements.
The state also places mandates on local governments, such as a new statute requiring consolidation of emergency dispatch services for towns with populations of less than 25,000 people.
Riverside, Brookfield and North Riverside are creating the West Central Consolidated Communications (WC3) in response, whose upfront costs are notable for a village like North Riverside.
All three communities are preparing to invest close to $600,000 each in the creation of WC3 in the next year.
“They passed a law saying we’ve got to do it,” Hermanek said. “Does this ever end from the state?”
But what has local officials really on edge is the idea of cutting municipalities’ share of state income tax revenues.
Local officials were on high alert in early 2015 when Rauner floated the idea of trimming municipalities’ share of the Local Government Distributive Fund, derived from state income taxes, as part of his so-called Turnaround Agenda.
The governor’s proposal would have trimmed local income tax revenues by 50 percent, numbers that made local elected officials gasp. Brookfield would have been in line to lose as much as $850,000 a year from such a cut, while North Riverside would have lost about $430,000 and Riverside about $250,000.
The 2017-18 state budget bill calls for a 10-percent reduction in the amount paid to municipalities from the Local Government Distributive Fund (LGDF). Zalewski, however, said that municipalities can expect in 2017-18 to receive the same amount of LGDF revenue they collected in 2016-17.
But Illinois municipalities are still owed LGDF money from the last fiscal year. That revenue will be rolled into payments made in 2017-18 and the total will equal the amount of revenue towns collected in 2016-17.
Had the budget not included a state income tax increase, the impact to the LGDF would have been worse, Zalewski said.
“[State Comptroller Susana] Mendoza was going to be unable to make the 2017 payments, so that 10 percent cut to 2017 would have been much worse, or the towns may have never realized the payment. Things were that bad,” Zalewski said. “All that aside, I’d argue on the whole we did our best to hold LGDF harmless.”
The Illinois Government Finance Officers Association last week confirmed that local governments will “most likely experience a 10 percent decrease in their portion of LGDF revenue” and that towns with fiscal years that are different than the state’s may see reductions in two different fiscal years.
If Brookfield were to lose the full 10 percent – which is unclear since the state’s overall income tax revenues are increasing with the new budget – it would amount to about $185,000. While Riverside and North Riverside would see reductions of roughly $50,000 and $86,000, respectively.
The LGDF reduction is only for fiscal year 2017-18, according to the budget bill, and Zalewski said he will sit down with local mayors to make sure they are part of the conversation about these issues.
“I think the mayors have a very strong voice and we are going to have to revisit some of the things we did to make it less burdensome with regard to LGDF,” Zalewski said. “I don’t know that the book is closed on any of these things. The mayors remain a vital part of all of these discussions.”