Quinn Proposes Reduction to Local Government Income Tax Revenue

By Tom Kocal

In the midst of his campaign effort to be elected Illinois Governor that already finds him behind in the polls, Governor Pat Quinn made some alarming comments today in his State Budget Address concerning income tax revenue shared by municipal, county and state governments. Quinn’s budget proposal includes a $300 million cut to monies guaranteed to municipal governments under the Local Government Distributive Fund (LGDF). The proposal will cut the amount of income tax that goes to local governments from 10 percent to 7 percent. This 30 percent slash in local tax revenue will undoubtedly increase the burden that municipalities are already feeling during this recession.

This cut comes at a time when local governments are trying to balance their budgets for the next fiscal year. The fiscal year of most municipalities begins on May 1. The governor’s proposal would force them to re-evaluate an already dire budget situation without sufficient time to fill the gaps created by this cut.

Besides his 33% income tax hike proposal, Governor Quinn’s new state budget includes taking an additional $2.8 billion from Illinois families and business, borrowing another $5 billion to fund operations of state government, and delaying payment of overdue bills. In many communities, the state is four months behind in their State Income Tax Payments.

Yet, the governor said, “The state is in a fiscal crisis and cannot afford to duck responsibilities.”

Bonnie Foust, Shannon Village President, said, “A $23.10 per capita reduction means we lose around $19,500 from our community.”

City of Savanna Mayor Larry Stebbins stated, “With the last census figure the reduction would be about $83,000. And we have not received February’s payment of around $25,000.”

On behalf of the Village of Chadwick, Treasurer Dawn Holland said Carroll County’s smallest community with a population of around 450 “would lose $10,395. Anytime you have a $10,000 loss, that’s substantial. But it’s especially tough on a small town like Chadwick.”

“The proposal means a loss of $36,590.40 over a fiscal year for the City of Lanark,” said mayor Ed Stern. “The $36,590.40 amount of decrease is figured by reducing the current projected $77.00 per capita income tax we expect to receive for this current fiscal year (01 April 2009 thru 31 March 2010) by $23.10 (or 30% of $77.00) and multiplying by 1584 residents, the population of Lanark from the year 2000 Census. I have no idea how far behind the State of Illinois is in their per capita shared income payments to the City. So far the amount of state-shared income tax revenue Lanark has recorded for this fiscal year amounts to $55.00 per resident. The State estimated back in December 2009 that cities should receive around $77.00 per capita for the current fiscal year if economic conditions did not deteriorate any further. Here in Lanark we will soon know how we actually end up as March 31, 2010 is the end of our current fiscal year and only a short time away.”

Local governments have been hit hard in this recession, and many are in a crisis

of epic proportions, according to a statement released by the Illinois Municipal League.

“Unlike state governments, municipalities must actually balance their budgets. There is no room for political grandstanding as we see from our state and federal governments so often. Our localities are at the core of the pain that is being felt through this recession. Should this proposal pass, the effects will undoubtedly be felt in your hometown on your Main Street.”

“The communities in Northwestern Illinois have their own financial concerns, particularly in the tough economic times we find ourselves in,” said Randy Prasse, Executive Director of the Tri County Economic Development Alliance (TCEDA). “With that being the case, TCEDA supports the funding levels remaining at 10%, as originally committed by Governor Quinn last September.

The governor’s remarks Wednesday came after he made a pledge at the Illinois Municipal League’s Annual Conference in September, guaranteeing municipalities 10 percent of current tax revenue and 10 percent of any additional tax revenue created from a tax increase. Pending a tax increase, this would have resulted in a growth of the funds distributed to municipal governments under LGDF.

Gov. Quinn has now backtracked on his promise and wants to strip local governments of these funds. The governor’s budget proposal must be approved by both the House and Senate in the Illinois General Assembly before becoming law.

“The $300 million that would be cut from local governments will not do much to help solve our state’s nearly $13 billion deficit. However, $300 million pulled away from local governments will be felt on Main Street. The re-allocation of these funds will impact personnel and services in localities all over the state. Local governments are at the core of the struggle during this recession and they are feeling the pain more than the governor acknowledges.”

“Since 2002, when I first became associated with the City as an Alderman, the per capita state-shared income tax revenue has trended upward year-after-year with the exception of the past fiscal year ending March 31, 2009 where per capita shared income tax fell slightly to $91.11 from $92.07 for the previous fiscal year ending March 31, 2008,” Stern said. “Sales tax revenues for this current fiscal year, which are based on sales within the boundaries of the City of Lanark and with 1 percent of the 6.5 percent sales tax returned by the State, are also down considerably after trending upward year-over-year in the past. As the economy slows, sales numbers go down and prices for products weaken. When happening together these two sales trends can have a significant effect on the amount of sales tax revenue received by the City.”

Michael Doty, Carroll County Administrator, acknowledged that this proposal will also have a detrimental affect on the County coffers.

“Yes, this will have a huge impact on the County’s revenues.  The exact amount is unsure, as this revenue source has been trending down slightly, but $150,000 in a fiscal year is our best estimate. What is even worse is when you put this proposed cut with the lack of reimbursements that the State has yet to pay this fiscal year.  Some of these reimbursements for salaries have not been paid since last June.”  

“There is no question that something needs to be done about the state budget process,” Hall added. “But it just doesn’t make sense to trickle-down these cuts to small towns.”

“TCEDA understands the need for fiscal frugality at the State level and believe that a comprehensive review of where it makes sense to reduce expenses is needed,” stated Prasse. “However, reducing funding to the municipalities does not seem to be the prudent thing to do—with little or no lead time for community leaders to react or make alternative plans for funding the programs that rely on the Local Government Distributive Fund distribution. It seems that a cost-benefit analysis on this funding would show that communities are able to provide services that, if left to their local taxing base, they would not be able to provide.”

“At this point we are in the process of next year’s budget,” said Stebbins.  “Like most things we hear from Springfield, we will not put a lot of stock into the initial report.  If the tax is reduced, we will adjust our budget.”

Stern echoed Stebbins’ comments. “The Lanark City Council has been keeping a pretty close eye on the City’s declining financial situation and has came up with some ideas for reducing spending going forward into the next fiscal year starting here April 01. No doubt the Council will have some challenging times ahead in trying to keep the same level of services in place that residents have grown accustomed to over the years. Just how drastic to cut or tighten the belt is unknown yet until the current fiscal year ends and firmer revenue numbers become available.”

The proposed cuts will have a negative impact on the whole region’s economic development plans, according to Prasse. “With the initial seed funding that created TCEDA’s critical programs and services coming primarily from the communities in Jo Daviess, Carroll and parts of Whiteside counties, we fear that this funding reduction to the municipalities would lead to a reduction in available funding to sustain TCEDA while we coordinate financial support from the businesses. Ultimately, we will be funded by businesses, with the communities providing minority funding—likely a 70/30 split.”

There is no doubt that this proposal represents serious cuts in services to citizens statewide who see more of a return to themselves on the 10 percent than they do in the state’s 90 percent of income tax they spend. Over the last two years, the amounts to local governments under the LGDF have decreased by over 15 percent because of the economic downturn. Local governments depend on a limited pool of resources to meet budget constraints. Most agree that now is not the time to cut those resources.

Although Mayor Stebbins concedes that Savanna will bite the bullet and do what they have to do with what they receive from the state, he added his views on another issue that many other local government officials share.

“The state needs to increase its income, and make spending cuts. It would be no problem for the City of Savanna to adjust if we were able to do away with the Prevailing Wage Law.  Every project the city does with outside labor requires us to pay outrageous labor based on the pay of Rockford and Chicago area labor.  It seems like every session of the state results in more expense to be passed onto the city and other governmental bodies without any thought of how to pay the bills.”

There are major differences in opinion about the Prevailing Wage Law and its effect on labor costs for projects planned by government bodies. Estimates range from 20- to 35%- higher construction labor costs.

“As the one economic development voice of the region, TCEDA would like to play an active role in hosting a series of broad-based public discussions on the topic, with the appropriate representatives from the State in attendance,” Prasse said. “This would enable all voices to be heard prior to any decisions being made about future funding from the Local Government Distributive Fund. The TCEDA team also looks forward to working with the individual community leaders in the tri-county region to determine ways to become less reliant on State funding in the future.”

The Carroll County Board plans to take action, too.

“We discussed Quinn’s proposed budget at our States Attorney and Finance Committee meeting last week,” Doty said.  “A proposed resolution has been sent to the full Board that denounces the states proposal to take 30 percent of the States shared income tax revenue from Municipalities (which includes Counties). 

The Carroll County Board is expected to address the resolution at its regular Board meeting Thursday, March 18.

The Illinois Municipal League is also urging you and your hometown leadership to be active in your opposition to the governor’s proposal. Call your senators and representatives in Springfield to voice your opposition to the governor’s plan or come to Springfield to voice your opinion at the Capitol.

“We must band together to stop Governor Quinn’s plan to take back money guaranteed to our local governments paid for by our local taxpayers for the municipal services they see and experience in their daily lives.”

“On a completely different note,” Stebbins added, “have you heard about the required ethics class for those who volunteer on police and fire boards?  Attending an eight hour class in Elgin is not a way to get volunteers involved.  And, the state is not the ideal body to require an ethics class!”

world wide web prairie advocate