When Illinois hiked its income tax four years ago, Frankfort and other towns didn’t get more revenue from the state, and now the village isn’t interested in taking a cut.
Gov. Bruce Rauner last month called for halving more than $1 billion in annual income tax payments to municipalities to help close a roughly $6 billion state budget deficit. The move, among a litany of tough medicine sought by the Republican governor in his Feb. 18 budget address, has city and village officials feverish throughout Illinois, including those in Frankfort.
“All it does is transfer a problem, a budget problem, from the state to the local governments,” Mayor Jim Holland said after Tuesday night’s Village Board meeting. “It doesn’t change any spending whatsoever. It just says, ‘OK, instead of the state being short of money, now all of the local governments are going to be short of money.’ How does that solve anything for the people of Illinois? The people of Illinois deserve better than that.”
Frankfort is somewhat of a fiscal model, at least compared to the state’s budget morass. The village recently paid off the last of its bond debt and is tapping reserves to finance $12 million in projects to build a new village hall, water tower and wells.
“The governor spoke in his speech about irresponsible spending in the past by state legislators, by the state government spending irresponsibly,” Holland said. “So reduce the spending where the irresponsible spending was, not by just transferring the problem.”
The mayor said Frankfort stands to lose about $866,000, or about 7 percent of its roughly $13 million annual operating budget, if legislators support Rauner’s idea. State senators dismissed a plan last year to cut the payments altogether and transfer the money to education, and former Gov. Pat Quinn previously tried to cap the payments to towns.
When lawmakers raised the income tax in January 2011, they limited the percentage going to local government so that the state kept all of the higher tax revenue. Municipalities currently get 8 percent of what the state collects from the 3.75 percent individual income tax and 9.14 percent of the take from the 5.25 percent corporate rate. The revenue sharing has been in place since Illinois enacted an income tax in 1969.
The local take grows automatically with the Illinois economy, and Rauner said overall transfers from the state to local government have grown 42 percent over the past decade. He called his plan a “modest cutback” to local governments that are “sitting on $15 billion in cash reserves.”
Frankfort ended the last fiscal year with $17.9 million in reserve, but all but $1.9 million was earmarked for paying off projects instead of borrowing.
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Patrick Guinane is a freelance reporter.