In 1969, the story of Illinois’ financial picture was arguably as dire as it is today.
To put Illinois on firmer footing, then-Governor Richard Ogilvie, a Republican, advocated for the need to enact a state income tax. For passage, Ogilvie needed the support of local officials across Illinois who would be preempted by the state’s proposal that also limited local income taxing authority. Ogilvie sought the assistance of then-Mayor Richard J. Daley, a Democrat. They compromised for the good of all. Instead of the new revenue going solely to the state, a revenue-sharing agreement was established giving local governments a percentage of all funds the state income tax provided.
The compromise worked. The law passed, and the sharing policy formally known as the Local Government Distributive Fund (LGDF) went into place. For decades Illinois cities, villages and towns, received a sufficient and stable source of funding that helped provide for public safety, infrastructure projects and general program and services that residents have come to rely on in their community.
That is, it worked until 2011. Following the enactment of a temporary income tax increase that year, the 10 percent share intended for cities, villages and towns was cut to six percent. While that was restored slightly in 2015, it was cut yet again in 2017. So while tax rates for Illinois residents may have gone up during this period, their communities did not see an increase in funding because the state kept all of the additional revenues raised through those higher taxes.
As it stands today, just 6.06 percent of revenue from individual income taxes and 6.845 percent of revenue from corporate income taxes is being sent to support communities across Illinois; a far cry from 10 percent. In other words, after 40 years of success, the past decade has seen the state fail to honor its agreement as the local share of income tax revenue has been nearly cut in half.
This is what that means for Chicago: Instead of receiving $431.1 million from LGDF in 2020, the city received just $265.1 million—a $170 million cut. Since 2011, the city has lost out on $1.3 billion, which happens to be the same amount as the gap officials have to fill in the 2021 budget. Illinois cities, villages and towns outside Chicago received $626.5 million less from LGDF in 2020 than they should have, with the state shorting them to the tune of $4.7 billion since 2011.
The result is what you would expect.
To keep budgets balanced, our cities, villages and towns have been faced with a choice: raise other revenues or cut critical programs and services. For many municipal governments, after cuts, there is no place to go other than raising property taxes.
This issue is bigger than any single community or the state. As budgets across the country are decimated by the financial impact of COVID-19, state-shared funding for local governments is more critical now than ever. The State of Illinois must live up to its commitment and fully fund LGDF to its rightful 10 percent share of revenues derived from state income tax.
Everyone understands the financial hardship that the state is facing, but if policy makers continue to push that financial hardship down to local governments then it will only expand the burdens placed on taxpayers. It is time to break this cycle for the good of all our communities.
Brad Cole serves as the executive director of the Illinois Municipal League. IML is the statewide organization representing the 1,298 cities, villages and towns throughout Illinois. Cole also served as Mayor of Carbondale from 2003-2011.