The Practical Impact of the State’s 10% Reduction in LGDF Distributions

Posted July 13, 2017 in IGFOA updates

Illinois local governments share in the Income Tax revenue collected by the State. The Local Government Distributive Fund (LGDF) is where the local government portion of the Income Tax collections are deposited and then disbursed. In the State’s recently passed 2018 budget, SB42 (PA 100-0023) includes a provision reducing the amount of Income Tax revenue to be deposited into the LGDF for distribution to municipalities by 10%. The IGFOA Legislative Committee has analyzed the practical impact of this reduction on Illinois municipalities and summarized their findings below.

The reason given for the 10% reduction in LGDF payments is to offset two (2) additional payments to be made to local governments from the LGDF. Accordingly, this will result in 14 payments rather than the usual 12 payments. Assuming the funds are available, the State does intend to provide 14 LGDF distributions over the 12 months of the State’s fiscal year (7/1/17 – 6/30/18.)

The State asserts that because there are 14 payments (rather than 12 payments) over the next 12 months, local governments will be “held harmless” in terms of total revenue, if not see a slight increase. However, upon closer analysis, these accelerated payments only eliminate the current two-month lag time between the receipt of the funds by the State and the disbursement of those funds to municipalities. The reality is that local governments are not receiving additional revenue (only revenue that is already due to them) and will most likely experience a 10% decrease in their portion of LGDF revenue.

Moreover, regardless of the lag time, most governments continue to record LGDF revenues in the month in which the revenue should have been received. Thus, unless your local government records LGDF payments on a cash basis (in the month cash is actually received), there will still only be 12 months of revenue. Once again, demonstrating that local governments will not recognize additional revenue.

It should be noted that if a government is not on the State’s fiscal year, the 10% annual cut will likely be spread across two fiscal years.

The links below are for examples from the City of Springfield and the City of St. Charles. They illustrate the impact of the 10% reduction upon those two cities and clearly dispels the notion that 14 payments made within a 12-month period compensates for the reduction.

City of Springfield Example

City of St. Charles Example

_Thank you to the following IGFOA members for giving their time and expertise to provide this information to the membership:_

Bill McCarty, Director, Office of Budget and Management, City of Springfield (Executive Board Liaison to the Legislative Committee)

Michael Mondschain, Director of Finance, Village of Wheeling, (Legislative Committee – Chair)

Jason Ashmore, Mayor, City of Sesser (Legislative Committee)

Chris Minick, Finance Director, City of St. Charles (Executive Board – Vice President)