Municipalities could take financial hit if state lawmakers try shore up Illinois budget with LGDF revenue

If history is any indication, Illinois lawmakers could take money that would have been sent to cities and towns across the state and use it to shore up their budget that is forecasted to be billions of dollars short. That, experts say, could lead to property tax hikes.

Illinois acts as a tax collector of sorts for towns and cities. The state collects income, sales, excise and other revenue and then remits it back to the municipalities via the Local Government Distributive Fund. The fund was instituted via the 1970 Constitutional Convention. In exchange, local income taxes were repealed.

Initially, the LGDF sent ten percent of revenue back to cities based on population but that share has slid down during hard economic times starting in 2011. A collection fee was also introduced on sales tax reimbursements that also lowered the amount cities received. Now, cities get 5.75 percent of state revenue and 6.5 percent of corporate income tax, according to the Illinois Municipal League.

With the state facing a coming budget shortfall that could be as much as $7.4 billion, some worry that lawmakers could lower LGDF allocations even further to help close the gap.

“Local governments have been squeezed a lot in the last ten years,” said Kurt Thurmaier, distinguished engagement professor and chair of the Department of Public Administration at Northern Illinois University. “Local governments keep having to use property tax increases because the price of police and fire protection keeps going up. If they don’t get assistance from the state, they have to use property tax.”

Many municipalities in Illinois devote nearly all of their property tax revenue to pay for public safety pension costs.

Brad Cole, executive director of the Illinois Municipal League, has been in contact with legislative leaders about their budget plans and is hopeful lawmakers will leave the existing LGDF unreduced.

“Every time there’s a discussion about the state budget and the reality that there will be a budget deficit, we get nervous about the General Assembly’s likelihood to take funds away from LGDF,” he said. “This is not the time to cut local governments anymore.”

Cole echoed Thurmaier that any cuts to LGDF would inevitably result in either service cuts or property tax hikes.

If state lawmakers wanted to give aid to local municipalities, Cole said there are dozens of unfunded mandates they could relax to allow local mayors to better manage their governments.

“We have, literally, one arm tied behind our back while we are trying to provide services to local residents,” he said. “We have reached out to the General Assembly and the governor during this time and otherwise with some suggestions about things they can do to be helpful.

Legislation introduced last month would have gradually restored LGDF allocations to municipalities to 10 percent by 2024. It wasn’t given a hearing before lawmakers were instructed to stay home due to the pandemic.

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