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State Budget and Local Revenues Update

July 3, 2017 | Legislative briefs

July 3, 2017

TO: Mayors/Village Presidents/Town Presidents, Aldermen/Councilmen/Village Trustees/Town Trustees, Managers/Administrators, Treasures/Finance Officers/Comptrollers, Clerks

FROM: Brad Cole, Executive Director, Illinois Municipal League

RE: State Budget and Local Revenues Update

After a lengthy special session, the General Assembly is on the verge of approving a budget package consisting of revenue and spending bills. The House approved revenue and appropriation bills on Sunday, July 2, 2017, and the Senate is scheduled to vote on these bills on Tuesday, July 4, 2017. The Senate will also vote on a Budget Implementation Bill (BIMP) that was approved by the House today. The revenue, appropriation and BIMP bills were approved in the House with veto-proof majorities. It is expected that if the Senate approves these bills, they will also be with veto-proof majorities. Our next update will occur via the Statehouse Briefing, unless there are significant developments that require a message similar to this. 

The revenue bill (SB 9 linked here) increases both the individual and corporate income tax rates to fund state spending obligations. These spending obligations are included in the appropriation bill(SB 6 linked here), which authorizes $36.054 billion in spending for state fiscal year 2018. This represents a spending reduction of almost $3 billion from state fiscal year 2017. Spending on local government purposes is included within the appropriation bill. Another bill, SB 42 linked here (BIMP), makes changes to Local Government Distributive Fund (LGDF) distributions. 

Illinois Municipal League (IML) staff has maintained a consistent presence at the Capitol to interact with legislators and staff members in order to remain apprised of the latest developments. We will continue to be at the Capitol, in-person, monitoring both the House and the Senate until these issues are fully resolved. 

The prospect of a property tax freeze remains viable, and legislation has been introduced and advanced in both chambers. The Senate previously passed SB 484, linked here, which would have created a two-year temporary property tax freeze. Upon arriving in the House, the bill was amended to provide for a four-year property tax freeze. The four-year property tax freeze was called for a vote on the House floor, but did not have sufficient votes for passage. A procedural move allowed the bill to be pulled out of the record to permit another attempt at passage at a later date. IML will continue to monitor the issue, however, and communicate our general opposition to a property tax freeze to legislators and the Governor’s Office. 

More specific information about how the budget bills affect municipalities is available below. It should be noted that Governor Rauner has already indicated he will veto the budget package, if approved, based upon the state income tax increase and absence of the specific reforms he has requested. Following the Governor’s expected veto, the General Assembly is expected to move quickly this week to override a veto and enact the budget into law, despite the Governor’s objection. 

Local Government Distributive Fund (LGDF)
SB 42 makes two changes to LGDF distributions. The first change is a 10% reduction in LGDF payments in state fiscal year 2018. IML has consistently opposed any cuts to LGDF. 

The second change is the direct deposit of these funds into the Local Government Distributive Fund rather than requiring the money to first pass through the General Revenue Fund (GRF). Bypassing the GRF will result in municipalities and counties receiving two accelerated payments (one time only) for a total of 14 LGDF payments instead of 12 in state fiscal year 2018. This means that, despite the 10% reduction in LGDF payments during state fiscal year 2018, local governments should actually see a slight increase in distributions for this one year. The accelerated payments, however, may be contingent on the Comptroller having the cash flow to make the payments earlier than usual. 

The following example best illustrates the proposed change to LGDF by factoring in the 10% reduction and accelerated payment provisions. For the sake of simplicity, the example will use a monthly LGDF distribution to a municipality of $1,000 ($12,000 annually). 

Under SB 42, the municipality would receive $900 per month in state fiscal year 2018 (10% reduction from prior year) for 14 months for a total of $12,600 annually. This would be a 5% increase over the prior year ($12,600 instead of $12,000). 

According to General Assembly legislative staff and legislative intent, the 10% reduction to LGDF distributions is only for state fiscal year 2018 and does not continue into future years. 

I have personally been in direct contact with legislative leaders in both the House and Senate to make sure that municipalities are protected on this issue. I specifically requested that the 60-day delay be removed, which will speed up payments to local governments going forward. I have also been given assurances that there is no negative impact on the status of the continuing appropriation of LGDF distributions. I want to thank the legislative leaders and the many individual representatives and senators who have been working with me diligently on this critical issue over the last two days. 

State Income Tax Rate Increase
SB 9 provides that, beginning on July 1, 2017, the state income tax rate would increase from the current 3.75% rate to a 4.95% rate for individuals, trusts and estates. For corporations, the increase would be from the current 5.25% rate to a 7.00% rate. These new, higher rates would be permanent. 

Corporate Personal Property Replacement Tax (CPPRT) Diversions
SB 6 includes a total of $219,015,900 in diversions from CPPRT. These diversions continue a practice that has occurred for the last several years. IML has consistently opposed all diversions from this fund. 

Local Government Pass-Through Revenues
SB 6 includes full funding for local government pass-through revenues (Motor Fuel Tax (MFT), video/casino gaming, Use Tax and emergency 9-1-1 system funds). This amounts to $912,475,000 in revenue to local governments in state fiscal year 2018. If SB 6 becomes law, local transportation infrastructure projects would have funding through the 2018 state fiscal year. IML has been advocating aggressively for the inclusion of this pass-through fund appropriation authority in an enacted budget, as we have been successful in doing during recent years.  

Mass Transit Funding
SB 6 appropriates $339,820,600 for downstate public mass transit. This is the same amount that was appropriated in the stopgap budget for state fiscal year 2017. 

Fund Sweeps
SB 42 includes over three pages of special fund sweep authority. While many of the sweeps do not impact funds earmarked for local government purposes, some would. A list of the special funds being swept is available here. The State Comptroller and State Treasurer are authorized to make the transfers in consultation with the Governor’s Office of Management and Budget (GOMB). Any funds swept from surplus revenues existing in the special funds are unlikely to directly impact municipalities. 

Local Sales Tax Collection Administrative Fee
SB 42 provides that, beginning in state fiscal year 2018, 2% of sales taxes collected on behalf of municipalities by the state will be transferred to the Tax Compliance and Administrative Fund. This is essentially a service fee imposed by the state on local governments for the collection and remittance of sales tax revenue owed to local governments. The Department of Revenue estimates that a 2% administrative fee amounts to $60 million per year. IML is opposed to this service charge being applied to municipal revenues.

As always, IML staff will continue to monitor legislative activity and aggressively advocate on behalf of our membership. Should you have any questions, please feel welcome to contact me at your convenience. Thank you.


BRAD COLE | Executive Director 
500 East Capitol Avenue | PO Box 5180 | Springfield, Illinois 62705 
phone: 217.525.1220 | cell: 618.201.7320 | fax: 217.525.7438 
email: bcole@iml.org | personal: brad.cole@hotmail.com | www.iml.org

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