The election of a new Chicago mayor should be the occasion for the state to restore to Chicago and other Illinois localities their 10% share of state income tax revenues.
That 10% is the local share on which Mayor Richard J. Daley and Gov. Richard Ogilvie agreed in 1969 when lawmakers passed the first state income tax in Springfield. Without that local share, Daley would never have agreed, and the tax would not have been imposed. The state was not “giving” money to cities; they were sharing in the benefit of the state’s capacity to raise revenue in this new way.
According to the 1970 Illinois Constitution, the home rule powers granted to Chicago and other localities excluded the power to impose an income tax. That limitation assumed that cities would continue to get their agreed share of state income tax revenues.
When Richard M. Daley was elected mayor in 1989, he and Gov. James Thompson agreed to a legislative package passed just a month later that included a temporary two-year increase in the state income tax on individuals to 3% from 2.5%. Half of that increase went to localities, so the local share went up.
Two years later in 1991, the legislature faced a decision on making the tax increase permanent. At one point, House Speaker Michael Madigan suggested that the local share of the increase might be eliminated. Tim Degnan, Chicago’s key Springfield representative, immediately went to Pate Philip, the Republican Senate leader, and began negotiating a bipartisan extension that preserved the local share. Madigan quickly retreated, and lawmakers passed the extension with the local share of the total tax at the long-standing 10% level. (The local share was extended initially for just a two-year period and then made permanent two years later. Jim Edgar, the governor at the time, has since disclosed that temporary provision was added at the request of Madigan who wanted to maintain leverage with Daley.)
Fast-forward, not coincidentally, to spring 2011. Daley had announced late the previous year that he was not running for reelection. The race for a new mayor, ultimately won by Rahm Emanuel, was in full swing, but no new mayor was yet in place. The legislature passed an increase in the income tax to 5% from 3% — with no local share of the 2% increase.
I recall looking at the bill introduced in Springfield and thinking the exclusion of the local share must be a mistake that the legislature would correct. But it wasn’t a mistake. One person who did not make that kind of mistake and unquestionably knew exactly what was happening was Madigan. Madigan often claimed to care about Chicago, but that was overcome by personal interests, including a long-standing rivalry with Daley. The reduced city share is another legacy of the Madigan era in Springfield that should now be put to rest.
The result of increasing the tax to 5% with no city share of the increase was that the local share of the overall taxes went from the historical 10% down to 6%. The total tax rate has fluctuated slightly in the years since and so has the city share. But with the total tax rate for individuals now at 4.95%, the city share is just slightly more than 6%. The local share of corporate income taxes is slightly higher.
Restoring the local share to its historical 10% would mean real money for Chicago and other localities. Based on total Illinois income tax revenues, the local distribution would increase by about $1.25 billion. The local share is distributed based on population, so Chicago would get more than $250 million.
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For the state, the loss of these revenues is easily accommodated in an almost $50 billion annual state budget. To make it easier, the shift back to the historical 10% could be phased in over several years.
For Chicago and other cities, that amount is much more significant. And importantly, it is not a one-shot revenue source but a continuing and growing participation in the strength of the state’s economy.
Restoring these revenues to Chicago and other cities would contribute to the positive spirit Brandon Johnson’s election as mayor has engendered and to his capacity to achieve key elements of his agenda. Sharing these revenues at the historical level with Chicago and other cities that are the state’s key economic engines would also be good for Illinois as a whole.
John Schmidt was Mayor Richard M. Daley’s transition chief and initial chief of staff in 1989. He later was chair of the Metropolitan Pier & Exposition Authority, ambassador and chief U.S. negotiator for the Uruguay Round of global trade talks and the associate attorney general of the United States.
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