Municipalities Could Face Cuts in State Funding

The governor’s proposal to make huge cuts in funding to state universities is the big news today, but municipalities are facing a similar threat.

At Monday’s council meeting, DeKalb’s finance director will present the mid-year budget report. The city appears to be pretty much on target for the current fiscal year, but administrators are concerned about possible future cuts to DeKalb’s share of the state income tax (see p. 26) if the governor gets the budget he wants.

Income tax started out on pace at the beginning of the year and has slowly fallen behind budgeted dollar expectations. Dollars are projected to come in slightly below budget at $4.15 million. Please note this revenue source is a part of the Local Government Distributive Fund (LGDF) which is currently collected and disbursed by the State of Illinois based on a per capita basis. With a new Governor, there has been discussion about perhaps eliminated [sic] these funds or changing the distribution allocation.

The current budget proposal doesn’t eliminate the income tax LGDF, but if passed would halve it. The impact on a given municipality would depend on how much of its budget depends on income tax. In DeKalb’s case it makes up about 12.5% of the operating budget so its absence would definitely cause pain.

This is not the first time a governor has targeted income tax payments to municipalities, and I identified this vulnerability as early as 2010. Even if we dodge the bullet this year, we should start talking about how to reduce dependence on this revenue source for funding operations.

Related: “Budget Addresses Have Consequences” at the Capitol Fax.