Illinois municipalities, many already strapped by declining sales-tax revenues and property tax caps, now have another budget problem: The state is up to two months behind in handing over their share of state income tax receipts.
Normally, municipalities receive one-twelfth of the state income tax pot, divided into 12 monthly payments and allocated according to population, plus a quarter of the current one-half-percent income tax surcharge.
In bedroom communities-those without many businesses that generate sales tax revenue-income tax payments can represent 20 percent or more of the budget.
Chicago is less dependent on the income tax payments because it has a stronger retail tax base and manufacturing tax base.
But with state revenues declining because of the recession, expenses rising as more residents seek state help, and the resultant cash shortfalls holding up everything from Medicaid reimbursements to state aid for schools, the money for cities isn`t coming through.
That`s creating problems for towns like Winfield, which relies on the income tax for $300,000 to $360,000 of its annual $2 million budget.
”The expenses here don`t stop if the state slows down its payments,”
said Marty Bourke, Winfield`s village manager.
As a result, Winfield, Roselle, Harvey and other towns throughout the Chicago area are scrambling to rebalance their budgets, considering taking out loans or at the very least worrying about their cash flow and watching interest income on their normally healthy balances plummet.
”I`m not going to use the word stealing, but it`s awful close if you think about it,” said Bourke, who also serves as secretary-treasurer of the Du Page Mayors and Managers Association.
Roselle, which relies on the income tax for $700,000 of its annual $5 million operating budget, is in much the same position, facing a shortfall of more than $60,000. South suburban Harvey faces an even bigger $150,000 shortfall in state payments.
”We essentially keep no reserve fund, which isn`t an ideal situation,”
said Robin Weaver, the village administrator of Roselle.
Even towns like Evanston, Barrington and Glenwood, where sales tax and property tax revenues play a much greater role in the budget, are finding it worrisome to see any of their revenue sources falling off.
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”It`s not a big item in our budget on a monthly basis, but any bit of cash helps or hurts,” said Robert Shonk, director of finance for Evanston.
According to Rick Davis, a spokesman for state Comptroller Dawn Clark Netsch, the cash-strapped state now owes $61.5 million in back income tax payments to local governments and does not expect to be able to pay it back
”for a long time.”
Robert Brock, deputy comptroller, said Friday that the total state bill backlog of $1.1 billion is so large that it will take many months to whittle down.
In fact, the backlog is big enough that even the agreement between legislative leaders and Gov. Jim Edgar to make budget cuts and pay overdue Medicaid bills with $500 million in borrowed funds won`t improve the situation much for local governments.
”We expect to be running backlogs and managing cash flow like this for the foreseeable future,” Brock said. He said the comptroller`s office may have to continue juggling bills for the next year.
On top of having to wait for their money, the total amount owed to municipalities may also drop, said Kevin Johnson, a spokesman for the state Department of Revenue. State income tax receipts are declining, as are other sources of revenue, as people lose their jobs in the recession. If the state`s take is reduced, so is the share that flows back to local governments.
If such problems continue or worsen, municipal finance directors say, communities might have to consider borrowing operating funds, issuing tax warrants or delaying payment of their own bills. Currently, however, few communities have had to do that.
”We were really in bad shape there for a while,” added Nancy Tisza, a spokeswoman for Glenwood, which is now seeing its income tax payments recover slowly. ”We`re not falling apart over it, but we don`t have a lot.”
Municipal coalitions throughout the Chicago area say the key to solving the problem is making sure the state isn`t allowed to use money owed to the municipalities to pay other bills. They said that could be achieved by creating penalties for late payments to cities or ordering all the money put immediately on receipt into a local government distribution fund.
Currently, that money passes first through the state`s general revenue fund.
The Du Page Mayors and Managers Conference last week approved a package of recommendations for legislators that asks them to pressure state government to be more timely with its payments, said Christine Martin, legislative liaison for the group.
The Northwest Municipal Conference also voted earlier this month to send a letter of protest to the state, and the South Suburban Mayors and Managers Association also is considering similar options.
”For communities that are really income-tax dependent, this is an absolute nightmare,” said Beth Ruyle, executive director of the south suburban group. ”Not to get the income tax on time plays havoc with their financing.”