Support House Bill 961 to Protect Funding for City Services

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.

Over the last few years, proposals have arisen to take some or all of this local portion of income tax revenue in order to help address the state’s budget crisis. However, unlike cutting line item spending to decrease state expenses, this change would merely shift the burden for continuing state expenditures onto municipal taxpayers, who would then need to raise local taxes to pay for their basic municipal services, or see those services wane. Fortunately, legislators ultimately understood this issue and have not taken LGDF revenues away from local services.

One continuing problem, however, has been delays in issuing LGDF revenues to local governments. As the state receives tax payments from residents and businesses, the portion owed to municipalities grows. However, funds must be transferred from the state’s General Revenue Fund into the LGDF before they can be distributed to cities and villages. By delaying this transfer, the state essentially “borrows” the money from municipalities, helping their own cash flow, but threatening the solvency of local governments. In recent years the delay has been as much as six months, creating significant problems for a number of local governments throughout the state.

This year, Representative Anthony DeLuca had the vision to further protect municipal taxpayers by filing House Bill 961 to ensure 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.

Thirty-three other Representatives, from both political parties, joined Rep. DeLuca as additional sponsors to HB 961, including Rep. Michael Fortner who represents a portion of St. Charles. On March 21, the bill was approved by the House Revenue & Finance Committee by a unanimous vote. The bill now goes to the House floor for a vote by the full chamber. We applaud the initiative shown by Rep. DeLuca and all the bill’s sponsors.

Residents can contact their Representative to encourage a “Yes” vote when this bill is brought to the House floor. It is important to let your legislator know that you value the local services provided by these funds, and to encourage the state to address financial concerns by balancing their own budget, rather than looking to use the revenue taken from other levels of government.

Please consider contacting your State Representative and asking for their support for HB 961. You can obtain contact information here.