***I’ve made a correction (asterisked in body of post) on 3/6/2026 to an earlier statement that suggested LGDF was originally legislated.***
Articles circulating about how municipalities are being “robbed” of income tax revenues from the state turn out to be nothingburgers once you look more closely at how Illinois does revenue sharing.
Municipalities and counties in Illinois aren’t allowed to collect income taxes for themselves. However, the state shares its income tax collections with them. A percentage of these revenues are placed in a special fund called the Local Government Distributive Fund (LGDF), to be allocated to these units of local government on a per capita basis.
Illinois distributed 10% of income tax revenues to the locals for decades. But in 2011, legislators temporarily raised income tax rates while reducing the local share to 6%. The percentage has fluctuated ever since, from 5.45% to 8% (of tax revenues from individual filers, with slightly higher rates for corporate taxpayers) in concert with tax rate changes and economic pressures.
Some folks yell foul. They want to return to the good old days of the 10% share. It’s true that state revenue sharing has become important for the health of local economies, and possibly a legitimate argument could be made on that basis for raising the percentage of the share. So far, though, I’m not seeing the affirmative case for it, except for the suggestion that maybe municipalities would reduce property taxes if they got more state money. (Lol.)
Illinois’ Current Role
Three points come to mind when it comes to discussing the state’s responsibilities to the locals:
— Municipalities are creatures of the state. It would be one thing if the 10% were enshrined in the Illinois Constitution. It’s not. LGDF originally wasn’t even legislation*, but part of a deal made with the mayor of Chicago to get him on board with the new state income tax. Nevertheless, state legislators could — hypothetically, anyway — change the current share percentage of 6.06% (6.47% corporate) down to 5% or 2% or zero. Framing a lowered share percentage as a steal is not only bad politics, but unhelpful in reaching an understanding of what is reasonable to expect or demand.
— Illinois does more than LGDF for localities now. The state picks up more of the tab for economic development than it did when the state income tax was invented in 1969, with tools such as enterprise zone and EDGE tax credit incentives. And besides use of the LGDF, Illinois shares the Personal Property Replacement Tax, as well as newer “sin tax” revenues from video gaming and cannabis use.
— Local data suggests the state does a decent job of ensuring stabilityof LGDF. I’ve analyzed both City of DeKalb and DeKalb County shares of the state income tax from 2010 to 2025. For each of these local governments, shared revenues grew annually in 12 of the 15 years, and exceeded inflation (CPI) in 11 of those years.
The City of DeKalb Experience
The 2011 drop in the income tax sharing rate is part of the story of Illinois saving itself from a combination of the Great Recession and the mismanagement damage of the previous decade. DeKalb’s experience was a microcosm of the state’s, including similar levels of excruciating financial pain that included several years of plummeting income tax revenues that preceded the state’s lowering of the rate from the traditional 10%.
Here’s a quote from my analysis of the city’s struggle in early 2010 to cobble together a balanced FY2011 budget that was to start July 1, 2010:
Although the city’s workforce already had been cut by 19 workers, another Reduction in Force (RIF) plan was proposed in case efforts to negotiate 12% across-the-board cuts in compensation failed — and indeed they did fail…To balance the budget, staff said 25-30 workers had to leave city employment one way or the other.
DeKalb had begun shedding jobs as a result of revenue losses in late 2007 (which was the first half of fiscal 2008). The city was also slipping in FY2009, and the fiscal 2010 budget year ended particularly brutally when revenues failed to meet expectations in virtually every category — including the state income tax share, which was short nearly $800,000 from the city’s original projection of $4.2 million.
What I’m getting at is high unemployment and population loss primarily drove the revenue “reset,” with most of this happening before the 2011 income tax hike and downward adjustment to the sharing rate. Here are DeKalb shares during, and coming out of, the Great Recession:
2008 – $4,274,684
2009 – $3,954,000
2010 – $3,472,036
2011 – $3,561,131
2012 – $3,745,298
2013 – $4,130,363
2014 – $4,197,441
Yeah, we lost ground. Everybody did. But now it’s hard to absorb the depth of the crises and their aftermath back then. Looking at financial reports from when DeKalb’s unemployment rate exceeded 10% feels surreal now.
But to get back to my point, fiscal year 2011 — despite lowering the share rate — still backstopped the fall of LGDF revenues for the municipalities. Then, when the 2011 temporary income tax hike was allowed to sunset in 2015, the state raised the municipal share to 8% and DeKalb collected $4.5 million, continuing a growth trend. As mentioned earlier in this post, the state has adjusted the rate occasionally since, and the overall stability of this revenue source is clear, suggesting nuance in the adjustments to achieve it. I appreciate that and I hope you can, too.
DeKalb expects nearly $7.4 million in shared income tax revenues and another half-million in video gaming and cannabis shares in 2026. All told, these and other intergovernmental revenues totaling some $9.5 million will make up 17.2% of the city’s General Fund budget, edging out property taxes and taking second place only behind sales and use taxes in terms of the size of this revenue category in funding operations.
To Summarize
I hope I’ve made a good enough introduction to the LGDF and its local impacts that we can talk about the merits and options without framing revenue sharing adjustments as robbery.
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