State House Approves Direct Deposit of Income Tax Proceeds for Cities

When Illinois first imposed a state income tax on residents in 1969, an agreement was made by legislators that, instead of allowing municipalities to impose a separate local income tax, the state would devote a portion of the state-collected income tax to local governments. This local portion of the income tax is essential to fund basic municipal services like police and fire protection, snow plowing, and much more.

Until 2011, 10% of all income tax collected was put into the state’s Local Government Distributive Fund (LGDF). Starting on January 1, 2011, the state increased the income tax rate, but lowered the local portion to 6% in order to keep all the new revenue in the state budget. Revenue in the LGDF is periodically allocated to municipalities on a per capita basis.

House Bill 961 was proposed to ensure the timely distribution of LGDF funds to local governments. Commonly referred to as “LGDF Direct Deposit,” this statutory change would require that the municipal portion of tax revenue be deposited immediately and directly into the LGDF, and then promptly paid to municipalities, without the need for intervening transfer, removing the opportunity to force a loan from the local governments to the state.

I am pleased to report that the Illinois House of Representatives has approved House Bill 961, which requires the direct deposit of LGDF (income tax) revenue to cities and counties.

Special thanks to Representatives Mike Fortner and Kay Hatcher for serving as co-sponsors to HB 961.

House Bill 961 now goes to the Illinois Senate for its consideration. Please consider contacting your State Senator and asking for their support for HB 961. You can obtain contact information here.