Suburban leaders: Reduction in local share of state income taxes could affect services, force tax hikes

Local governments are crying foul in the wake of Gov. JB Pritzker’s proposed cut to their share of the state income taxes in 2027.

That share, known as the Local Government Distributive Fund, is used by local governments to offset the costs of a number of services, including police, fire and public works. It also helps some cover public safety pension costs.

Municipal officials say the cut could lead to reduced services or higher property taxes, sales taxes or fees.

When the state instituted its income tax in 1969, it was intended to preempt municipalities from charging their own income tax, with 8.33% of income tax revenue distributed to municipalities on a per-capita basis. That changed to 10% in the 1990s.

Over the years, municipalities’ share has decreased. In 2011, in response to the recession under Gov. Pat Quinn, it was reduced to 6%. Now, it stands at 6.47% for individual income taxes, but under Pritzker’s proposal, announced during his budget address last month, it would drop to 6.28%.

Opponents say the move cuts $60 million from municipal and county budgets statewide.

“We’ve been fighting this LGDF battle for years,” said Buffalo Grove Village President Eric Smith, who also is vice president of the Northwest Municipal Conference. “And this year, it wasn’t even on our radar.”

Last year, Buffalo Grove received more than $7 million in LGDF funds.

Leaders say counties and municipalities collectively have lost $9.87 billion in revenue over the past 15 years.

In DuPage County, Roselle Mayor David Pileski, who is president of the DuPage Mayors and Managers Conference, said his community has lost more than $14 million in LGDF revenue since 2011.

If the LGDF were back at the 10% level, that would mean $650,000 more to the village of Barrington, Village Manager Scott Anderson said.

The governor’s office said the 2027 budget is not reducing funding, just holding the line, maintaining the same income tax dollars as the previous year.

The state also has passed legislation helping municipalities raise revenues or save money, Pritzker’s office contends.

“Since 2019, the governor has increased revenue sharing with local governments by nearly $1 billion — a 71% increase — and enacted more than $2.5 billion annually in additional ongoing resources through transportation funding, cannabis legalization, video gaming, casino expansion and other measures,” a Pritzker spokesperson said.

But Pileski doesn’t buy it.

“I think we hear this narrative from Springfield pretty often, that we’ve given municipalities other opportunities to make up the difference,” he said.

He argued those are revenues communities must opt into, which they may not want to do.

“Our community has, and I can tell you, as a matter of fact, it has not made up the difference in lost revenue from the LGDF,” Pileski said.

Illinois Municipal League Chief Executive Officer Brad Cole isn’t buying the governor’s explanation either. He told his board municipalities are absorbing costs while the state retains a greater share of growing income tax revenues.

“Every time it seems like they need to tighten their belt, it comes at the expense of the municipalities,” Buffalo Grove’s Smith said. “Every time we take a hit, there’s more of a chance we’re going to have to raise taxes.”

Mark Fowler, executive director of the Northwest Municipal Conference, which comprises 44 suburbs, said his agency has estimated the cost to its members from the proposed cut in LGDF to be about $6 million.

“That’s $6 million that towns are going to have to either come up with via property tax increases or service cuts or some other way to make up for the lost revenue,” he said.

Suburban leaders have spoken with their representatives in Springfield, but lawmakers have said little, if anything, about the LGDF.

One exception is Rep. Brad Stephens, a Republican who also is mayor of Rosemont.

“The solution to get us there is not tax hikes or expanded government; a better budget proposal starts by keeping local government revenue streams where they belong,” Stephens said.

Pileski said the state and municipalities need to work together on the issues, rather than engage in name-calling.

“Because what’s good for the state can be good for the municipalities,” he said.