THE REALITY OF DECLINING REVENUES IN 2002-2003

The City of Lincoln has passed through a lean and discouraging year of declining revenues that provide monies for the operation of City business. Yet, we look forward with optimism to the future as our struggling Federal and Illinois economy begins its slow recovery.

Our largest single source of revenue in Lincoln is the sales tax that is collected locally and sent to the Illinois Department of Revenue for distribution. This is the 1% municipal share of the 6.25% statewide rate on general merchandise and 100% of the tax collections on qualifying food, drugs, and medical appliances for taxable sales made within the Corporate limits of our municipality. Council members are reminded that sales tax has a 4 month cycle: Liability Month; Collection Month; Bookkeeping Month (State); and the Distribution Month.

Looking at the chart entitled, SALES TAX RECEIPTS FOR LINCOLN 1997-2003, you can easily trace the history of sales tax receipts in Lincoln over those six years. The good news is that the sales tax had a slight gain over the past fiscal year. Our collection records show $1,912,645 for the fiscal year, which reflects a 1% increase over 2001-2002. The State sales tax report shows that for the 2002 Calendar Year we received $1,919,813, which is quite close to our Fiscal Year tax receipts. Please look at the paper entitled, SALES TAX DISTRIBUTION-- ILLINOIS DEPT. OF REVENUE, for a brief explanation of the categorical breakdown of sales tax distributions to Lincoln, Illinois.

I have taken the liberty to contact Barbara Henry of the Illinois Department of Revenue to request a copy of the Logan County taxpayer listing for sales tax. I want to review the list to make sure none of the City Sales Tax entities are on the Logan County listing like we discovered in 1998. It's good to note that even with a struggling economy our sales tax receipts DID NOT DECLINE in FY 2002-2003.

Our second largest source of revenue is of course property tax. Its final entension is controlled by the Illinois Property Tax Caps, which limits the increase in tax revenues using the Consumer Price Index as its guide. In the 2002 levy year the CPI was 1.6%. The projected CPI for the 2003 levy is 2.4%, which will allow us some increase over last year's entension for monies to be received in the 2003-2004 Fiscal Year. The 2003 levy will be made in December, 2003.

Our next largest source of revenue for the City of Lincoln is the income tax. One tenth of the net income tax collections minus the "refund deposits" is distributed to municipalities, and the amount received by the City is based upon the City population in proportion to the State population. The Federal Census determines the population figure and the latest for Lincoln is 15,369 while the State census is approximately 12,419,300. Thus, the local income tax is poured into the State pot and our distribution share is based strictly upon the distribution formula.

This year the income tax distribution was DOWN 6.98%. Revenues declined from 2001-2002 ($1,009,892) to 2002-2003 ($939,321)... a loss of $70,571. The Illinois Municipal League warns that the income tax distribution could suffer another loss in 2003-2004 if the State of Illinois pays out the refunds plus a backlog of refunds before the end of the 2003-2004 Fiscal Year.

Interest returns on investments have struggled through a miserable year of low interest rates. The budgeted expectations for the interest revenues in 2002-2003 totaled $84,940 excluding the pension funds. The actual interest collected in comparison to the budgeted amount was $40,324 or 56% below expectations....please note the chart on Interest Collections. Our pension funds also suffered as the Police Pension interest earned was $170,081 compared to a budget figure of $400,000 and the Firemen's Pension was at $146,860 compared to the $300,000 budgeted. Hopefully, the economy will improve and interest rates on investments will rise which will provide a better earned interest income. One thing we should also keep in mind is that lower fund balances means less funds are available for investment purposes.

Replacement taxes are revenues collected by the State and paid to local governments when their powers to impose personal property taxes on corporations, partnerships, and other business entities was taken away. The Personal Property Replacement Tax Fund distributes 51.65% to Cook County and 48.35% to downstate counties. The collections from the 1977 tax year are used to calculate each district's share or "allocation factor." Distributions are made in March, April, May, July, August, October and December. The replacement tax in 2001-2002 was $221,303. The replacement tax in 2002-2003 was $180,826, which is a loss of $40,477 or 18.2% when compared to last Fiscal Year.

The Photoprocessing Tax yielded $29,727 in FY 2001-2002 and $11,987 in FY 2002-2003 before the tax was eliminated by legislative action. Efforts to reinstate the tax are underway, but, they don't look promising as long as the State Budget is out of balance. Prior to its elimination the State made a monthly transfer of 0.4% of the State portion (5%) of the Sales Tax to municipalities based upon a population distribution formula.

The USE TAX is a tax imposed on the privilege of using, in Illinois, any item of tangible property that is purchased anywhere at retail. The use tax rate is 6.25% on purchases of general merchandise including automobiles and other items that must be titled and registered. The use tax is 1% on purchases of food, drugs, and medical appliances. Twenty percent of the collections for general merchandise and 100% of the collections on qualifying food, drugs, and medical appliances is returned to local governments. The USE TAX collections were $145,529 in FY 2001-2002 and $146,381 in FY 2002-2003, a net increase of $852. Not much gain, but, not a loss either!

Lester D. Plotner

City Treasurer

May 19, 2003

SALES TAX RECEIPTS FOR LINCOLN 1997-2003

SALES TAX DISTRIBUTION -- ILLINOIS DEPT. OF REVENUE

STANDARD INDUSTRIAL CLASSIFICATION REPORT DESCRIPTION

• Ten categories used for reporting purposes

• Each category group by tax type

MT- Municipal Tax: This is the 1% municipal share of the 6.25% statewide rate on general merchandise (equivalent to 16% of tax collections) and 100% of the tax collections of the 1% rate on qualifying food, drugs, and medical appliances for taxable sales made within the corporate limits of the municipality. This amount is returned to the municipality where the sale is made.

SIC CATEGORIES

General Merchandise: Dept. stores, variety stores, miscellaneous general merchandise stores.

Food: Grocery stores, meat/fish markets, fruit/vegetable markets, confectionery stores, dairy product stores, retail bakeries, misc. food stores.

Drinking and Eating Places: Eating places, drinking places, hotels and motels.

Apparel: Clothing stores, shoe stores, misc. apparel and accessory stores.

Furniture, Household, and Radio: Furniture and floor covering stores, household appliances, radio/tv/electronic stores, computer and hardware stores, repair stores of all kinds.

Lumber, Building and Hardware: Single family construction, residential/non-residential construction, industrial buildings and warehouses, highway/street/bridge/water/sewer line construction, plumbing/heating/air conditioning, masonry, carpentry, concrete work, etc.

Automotive and Filling Stations: New and used car dealers, auto/home supply stores, gasoline service stations, boat dealers, recreational vehicle dealers, motorcycle dealers, vehicle leasing firms, carwashes, auto repair shops, etc.

Drugs and Miscellaneous Retail: Drug stores, liquor stores, used merchandise stores, sporting goods, bicycles, book stores, jewelry stores, gift shops, fuel oil dealers, florists, tobacco stores, optical stores, etc.

Agriculture and All Others: Crop sales, nursery products, veterinary services, lawn/garden services, office equipment, taxi cab services, and many others.

Manufacturers: Candy products, manufactured ice, millwork, glass containers, concrete blocks, ready-mixed concrete, lawn and garden equipment, burial caskets, and numerous other types of manufacturers.

COMPARATIVE SUMMARY FOR THE CALENDAR YEAR

JANUARY 1, 2000 TO DECEMBER 31, 2000 /
JANUARY 1, 2002 TO DECEMBER 31, 2002

• For the reporting year (Jan. 1 to Dec. 31) there was a $ 13,282 increase in sales tax in 2002 compared to 2001.

• The largest losses in 2002 as compared with 2001 were: Food ($7,926); Apparel ($4,146); Agriculture/All Others ($3,243); Manufacturing ($3,205)

• The gains in 2002 as compared with 2001 were: General Merchandise ($1,500); Drink/Eating ($2,300); Furniture/Household ($133); Lumber/Bldgs. ($4,329);       Automotive/Gas Stations ($16,400); Drugs/Misc. Retail ($7,137).

• In the Drinking and Eating category we gained $2,300 in sales tax revenues in 2002 as compared to 2001. I guess we have our priorities, don't we?

• The number of TAXPAYERS (Retailers) who filed returns for the three years mentioned in the chart were: 2000 (628) and 2001 (626) and 2002 (548). That number could be losses of businesses or fluctuation in the number of vendors who participate in local festivals such as the Balloon Fest, Logan County Fair, and Railsplitter events. That could be checked out if anyone wanted to compare listings of taxpayers over the past several years.

INCOME TAX REVENUES- FISCAL YEARS 2001-2003

INTEREST EARNED VS. 2002-2003 BUDGET ESTIMATES

DISTRIBUTION OF USE TAX AND PHOTOPROCESSING TAX