In a move likely to complicate his efforts to extend the state`s temporary income tax surcharge, Gov. Jim Edgar said Thursday that some of the tax revenue now earmarked for municipalities should be diverted instead to the cash-starved state treasury.
”There are needs that require that a part of that (surcharge) money go to the state,” Edgar said during an interview with the Tribune editorial board.
”I think the cities should get some, (but) they`re not going to get all that they got last time,” he said, declining to provide any specifics.
Edgar said during last fall`s gubernatorial campaign that counties, cities and villages would likely not get the same roughly $300 million share of the surcharge revenue, but Thursday marked the first time that he has said the state should share in the take.
It also served to underscore the severity of the state`s budget crisis.
Edgar`s remarks provoked a predictable response from municipal officials and reopened an old campaign wound. An aide to House Speaker Michael Madigan
(D-Chicago), architect of the current surcharge, said Edgar`s support for diverting some surcharge revenue to the state amounts to endorsing a general tax increase, which Edgar promised he wouldn`t do during his first term.
”It would complicate things dramatically,” Madigan spokesman Steve Brown said of Edgar`s push to get the General Assembly to continue the surcharge past its June 30 expiration date. ”All of this whole budget-cutting talk from Edgar was very (Jim) `Thompsonesque` and now we`ve come full circle to a tax increase.”
Edgar`s plan to divert surcharge revenue to the state ”was the second shoe to drop” on local governments in two days, said Senate President Philip Rock (D-Oak Park), following the governor`s call Wednesday to limit property tax collections by local taxing bodies.
”It doesn`t come as any surprise to me that he`s seeking a piece of that action,” Rock said. ”There`s no question we could probably use a direct infusion of cash to get caught up and pay our bills.”
But Edgar`s campaign to win extension of the income tax surcharge now becomes more complex.
Previously, Edgar declared that he would not sign a continuation of the surcharge unless it received a three-fifths majority of both chambers in the General Assembly-a difficult proposition in a highly partisan year in which legislators will be drawing new district boundaries from which to run in 1992. Edgar`s plans to diminish the revenue-generating abilities of local governments through his call to limit the growth of property tax collections to 5 percent a year or the rate of inflation, whichever is less, also has mobilized the municipal lobby and the education lobby in opposition.
Now, with Edgar proposing to divert some of the municipal share of a continued tax surcharge, the opposition from municipalities is likely to intensify.
Crystal Lake City Manager Joseph Misurelli said loss of the funds
”would be a serious problem.”
Crystal Lake receives about $600,000, or about 10 percent of its operating budget, from the income tax surcharge, Misurelli said. The city has used the money to counteract state pension fund increases and keep city tax bills from skyrocketing.
”If the governor takes the means away (to keep taxes down), that`s a real problem. We`ll be watching it very, very closely and try to deal with it,” he said.
Schaumburg expects to receive a total of up to $3.5 million from the 2-year income tax surcharge, said Village Manager George Longmeyer.
”We in Schaumburg always looked upon that money from the state as something not to be depended upon . . . (and) to be used for one-time capital projects,” said Village President Al Larson. ”We certainly would like to have that money coming back on a regular basis, but it`s understandable that the governor is having a tough time with the budget.”
”Now there are some municipalities desperately in need of the money to make up for shortfalls in their budgets,” especially as they try to pay for state-mandated programs, Larson said. ”The governor also should talk about seeing that the state doesn`t continue to mandate programs and pay for them on the back of local government.”
The village, like most other communities, has viewed the surcharge as temporary and has taken care to tap it only for one-time costs. In Schaumburg, the funds were used to build a fourth fire station and to rebuild a local street.
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”I`d be disappointed” if part of the surcharge were to disappear, Longmeyer said.
”Local governments have used this money to hold down taxes, or to keep taxes from increasing, and to fund necessary capital projects.”
Arlington Heights Village President William Maki said that he wasn`t surprised at Edgar`s statement: ”From Day One I envisioned a scenario that the surcharge would continue, and that the state would demand an increasing portion of the surcharge.”
Arlington Heights has used its $4 million share of the funds for street repairs and, if the money keeps flowing, may use it in the future to buy new fire department equipment, Maki said.
”Yes, I`d object (to losing part of the money),” Maki said, ”but I guess it would be an enlightened objection, with the knowledge that the state has some very serious budget needs.”
Local governments have ”an absolute need for this (surcharge),” said James Smirles, village president of Glenview, which is to get $1.5 million total out of the 2-year surcharge.
Rock said such a diversion of surcharge dollars could end up winning Republican votes for extending the tax-votes that were all but nonexistent when the surcharge was approved last year-since it could no longer be viewed primarily as a bailout to fund Chicago municipal government.
Using the diverted surcharge money to pay off overdue state bills, such as payments to physicians who treat the poor, also would be a payback to the traditional Republican support given by the Illinois State Medical Society.
At the same time, any great reduction in municipal surcharge revenue could result in the peeling off of some votes to extend the tax from Chicago Democrats.
Mayor Richard Daley`s city budget is counting upon receiving $92 million from the tax with no change in its distribution formula.
Edgar, himself, admitted that the already difficult task of approving the surcharge has been aggravated by worsening state budget problems.
”The situation is such that I think the General Assembly is going to take a long, hard look at where that surcharge is going to be spent, probably a closer look than they might have taken even a year ago,” Edgar said.
”When they`re faced with the fiscal realities the state`s going to have to deal with, I don`t think they`re probably going to be as apt to give it to somebody else, but I think local governments should receive part of that surcharge. Realistically, I don`t think you could pass it if you took it all away” and gave the money to the cities, Edgar said.
Edgar did not provide any specifics of an altered surcharge distribution plan other than to say education would get the same proportion that it currently receives-about $378 million for the fiscal year that ends June 30. Details on the surcharge will come in the budget proposal he sends the General Assembly on March 6.
Though critical of the plan to cap property taxes, the Northwest Municipal Conference has approved a legislative agenda that generally supports Edgar`s desire to give municipalities fiscal relief.
In formulating their spring lobbying efforts, conference members voted to support Edgar`s plan to provide fiscal relief to municipalities under the state mandates act.
Conference members, assuming Edgar would push for continuing their share of the surcharge, voted to back his plan to keep it in place.
However, the mayors and village presidents who are members of the municipal conference joined their counterparts in education to criticize the tax cap plan as unworkable and potentially harmful.
”If this thing goes through, most municipalities would levy the
(maximum) 5 percent every year” because they`d be afraid of getting caught short later, said Niles Village President Nicholas Blase. ”We`d fall into the same trap as the schools-raising money and then deciding how to spend it.”
”If you want to aggravate things even further, consider losing the income tax surcharge too,” added Charles Zettek, village president of Elk Grove Village.