Tuesday, May 22, 2012
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State looks to take more revenues away from municipalities

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[May 22, 2012]  At last week's committee of the whole meeting of the Lincoln City Council, Mayor Keith Snyder shared that Illinois House Speaker Michael Madigan had proposed a plan to take away all funding to municipalities through the state's replacement tax.

To date, that motion has failed to pass. However, the state has come up with a new idea: take away the city's share of increased income tax.

When individuals file their income tax returns with the state of Illinois each year, that money goes into a pool, and municipalities receive a percentage of the total collected, based on per capita figures, not actual income of a city's residents.

The result is that even though wages may not be increasing in the city of Lincoln, if they are increasing elsewhere, Lincoln has the potential to benefit from it.

Based on information from the Illinois Municipal League, Snyder outlined in the text below how the state's plan to freeze municipality income taxes would affect Lincoln's share.


The Senate Democratic Caucus has offered an FY2013 budget proposal that freezes the amounts municipalities and counties receive from the state income tax. That would mean any growth in the income tax would not be passed on to local governments.

Based on Illinois Municipal League estimates, holding back LGDF growth will cost municipalities and counties approximately $20 million to $50 million as follows:

If the income tax grows 2%, local governments statewide lose $20.9 million or $1.63 per person (equaling a $23,635 loss for Lincoln).

With 3% growth, the loss is $31.3M statewide, $2.44/person, $35,380 to Lincoln.

With 4% growth, the loss is $41.8M statewide, $3.26/person, $47.270 to Lincoln.

With 5% growth, the loss is $52.2M statewide, $4.07/person, $50,015 to Lincoln.

The State will counter that the proposal "holds local governments harmless" because only those revenues in excess of what was collected last year would be taken away. It should be remembered, however, that cities like Lincoln were "held harmless" when the state elected to increase the income tax and kept 100% of that new revenue.

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That change reduced the local government share from 10% of total collections to 6%. Despite a reduction in the local percentage of total receipts, it was understood that municipalities and counties would continue to benefit from any growth in income tax collections. This most recent proposal will keep us from capturing anywhere from $23,635 to $59,015 in growth and is a clear reduction in state income tax revenue.

Snyder reminded the council that when Illinois proposed to increase the state income tax, the state gave municipalities nothing, but promised that cities would still reap the benefits of increases in net income of the filers.

However, the state is now threatening to take those increases as well.

Chuck Conzo, city treasurer, also commented on this, saying that even though the state is taking money away from municipalities, the state is not reducing any of the mandates attached to state revenues.

Conzo added that what we are seeing is that the state is trying to raid every possible fund to solve its own problems.

This new idea has not yet been passed through the House and Senate. Snyder told the council he has contacted Sen. Larry Bomke and expressed his concerns over the proposed change.

Snyder ended his comments to the council by saying: "I would argue that any job growth that Illinois has seen has been largely the result of private enterprise, local businesses expanding and growing. A little piece of that, I think, comes from local government working at it, encouraging their businesses to grow, and now the state is saying, 'You go ahead and grow; we'll take all the increased revenue.'"


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