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Why state froze price for cities' share of earnings taxes

When Pingree Grove’s new inhabitants figures had been launched a couple of years in the past, village officers knew it might finally lead to a small windfall of latest state income.

That’s as a result of the state carves out a portion of its annual earnings tax haul for redistribution to municipalities primarily based on inhabitants via its Native Authorities Distributive Fund.

“The village’s $322,578 enhance in 2023 LGDF (income) over the earlier 12 months’s was a direct results of the 2020 census,” mentioned Pingree Grove Clerk Laura Ortega.

Solely the elevated LGDF income acquired by Elgin, Naperville and Schaumburg final 12 months was greater than Pingree Grove’s, in line with Illinois Department of Revenue records. However Pingree Grove’s spike amounted to 25% greater than what the village acquired in 2022, the best share bump within the suburbs.

On common, suburban municipalities acquired roughly $85,000 extra in LGDF income in 2023 than in 2022, data present.

Whereas inhabitants development performed a big half in Pingree Grove’s fortunes, the village and different cities had been additionally aided by a slight enhance within the share of earnings taxes the state was sharing that 12 months. The speed rose from 6.06% in 2022 to six.16% in 2023. It grew once more this 12 months to six.47%.

Nevertheless, the just lately accepted state funds referred to as for the LGDF price to stay stagnant subsequent fiscal 12 months, which begins July 1, upsetting many municipal leaders who complain the state ought to restore the speed to the ten% agreed upon in 1969, when a state earnings tax was launched.

In 2011, the state slashed the LGDF price to six% in an effort to shore up its monetary issues.

“Going again to 10% is what we’ve been asking for the previous decade or so,” mentioned Mark Fowler, govt director of the Northwest Municipal Convention, a lobbying and buying cooperative made up of 42 suburbs in 5 counties. “The governor’s argument is that they’ve elevated different charges and taxes that make up any losses municipalities have sustained.”

Only some suburbs noticed their share of earnings taxes shrink final 12 months regardless of the speed enhance. No city was tougher hit than Aurora, which misplaced $446,911 in 2023, data present. That’s a 1.6% decline from 2022.

“This is likely one of the causes we’re actively looking for a particular census as a result of we firmly imagine the census bureau undercounted in 2020, and it was an error we’re attempting to appropriate,” mentioned Alex Alexandrou, chief of employees to Aurora Mayor Richard Irvin. “The earlier we appropriate the census quantity is one other means of getting more cash.”

However the 2011 price reduce performs a bigger position. If municipalities had been getting 10% of state earnings taxes once more, Aurora would have acquired virtually $18 million extra in 2023.

“We’ve been working with the council of governments for years to extend the speed, sadly it hasn’t occurred,” Alexandrou mentioned. “Its results apply to extra than simply Aurora.”

Aurora officers are hoping a particular census will present a better inhabitants determine so town can obtain a bigger share of the earnings tax income the state splits with municipalities.
Brian Hill/[email protected]

Rosemont, Wayne and West Chicago additionally noticed much less earnings tax income in 2023 than in 2022.

Final 12 months, 93 suburbs acquired greater than $390 million mixed from the LGDF. If the speed had been 10%, they’d have virtually $250 million extra, in line with state figures.

Statewide, municipalities would have acquired an extra $1 billion mixed if the shared price was at 10%, data present.

Lawmakers be aware that since 2011, the state has accepted video playing and leisure marijuana gross sales, all of which might be taxed domestically and lead to important income for municipalities.

A spokesman for Gov. J.B. Pritzker factors to different initiatives which have helped make up for any misplaced LGDF income.

“Supporting the operation of native governments is a key a part of the state’s monetary infrastructure,” mentioned Alex Gough. “Within the fiscal 12 months 2025 funds alone, native governments are set to obtain roughly $400 million in new funding via the retailers occupation tax, a cap on the quantity of gross sales tax retailers are capable of preserve and a re-renters tax on third-party entities that resell massive blocks of resort rooms.”

Gough additionally mentioned below Pritzker’s management, municipalities are receiving a mixed $1.1 billion extra yearly than they had been previous to him taking workplace.

Nevertheless, municipal leaders nonetheless argue the LGDF price needs to be restored to the ten% stage, particularly with the looming demise of the grocery tax in 2026.

“The native authorities distributive fund is the fairest means of doing issues, as a result of it’s primarily based on inhabitants,” Fowler mentioned. “Not each city permits or can maintain video playing or (marijuana) gross sales.”

And Alexandrou famous that even with constructive outcomes from a particular census, it gained’t make up for the lack of the grocery tax.

“To say we might make up that grocery tax simply, I wouldn’t agree with that,” he added. “It’s a troublesome place to be put in by the state.”

Aurora stands to lose about $5 million yearly from the lack of the grocery tax, Alexandrou mentioned.

Statewide, it’s estimated municipalities will mix to lose greater than $350 million yearly from the lack of the 1% grocery tax. Nevertheless, these cities can decide to levy their very own grocery tax starting in 2026.

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