For Belleville’s 2016 fiscal year, which begins May 1, the municipality is projecting to receive about $4.4 million in state-income tax transfers, which the city puts into its general fund that pays for police, fire protection and streets, among other things.
The amount represents about 16 percent of its general fund revenues.
However, a proposed cut by Gov. Bruce Rauner could see that amount of income tax money reduced to $2.2 million, which could lead to cuts in personnel and services, according to Belleville Mayor Mark Eckert.
“We depend on the income tax (from the) Local Government Distributive Fund; it’s a significant part of our revenue,” Eckert said. “I understand the state has issues and everyone has to pitch in.”
Now that the General Assembly and Gov. Bruce Rauner have agreed on a fix to fill a $1.6 billion budget gap in the 2015 fiscal year, they are faced with closing a $6 billion budget gap for the 2016 fiscal year.
In Rauner’s budget address, he called for local governments to tighten their belts, and proposed a 50 percent cut in the Local Government Distributive Fund, the state income tax transfers to municipalities, to help close the budget gap for the upcoming fiscal year. He added that local governments around the state have more than $15 billion in cash reserves.
“If we restructure with reforms so local voters control a lot of the issues we talked about on whether taxes can go up, whether issues can be collectively bargained in our schools or in our government, we change those and get reform, then that would free up a lot of money so we don’t have to cut certain programs or support for certain governments,” Rauner said. “That reform is critical.”
Rauner’s office said years of irresponsible budgeting by the state led to the $6 billion budget gap that needs to be closed.
“The amount of money transferred to local governments has ballooned by 42 percent in the last decade, and the reduction to local governments proposed in the budget puts Illinois in line with neighboring states,” Rauner spokeswoman Catherine Kelly wrote in an email. “Through the local government task force he created, Gov. Rauner is committed to working with local communities to reduce costs and give them increased flexibility.”
The proposed reforms in Rauner’s Illinois Turnaround plan include limiting prevailing wage requirements, looking into unfunded mandates on local governments and empowering local voters to control collective bargaining issues in their local governments.
However, local government officials are not thrilled about the proposed funding cut and say it could be devastating.
Municipalities use the state income tax transfers in their general funds, which help pay for street maintenance, snow plowing, police and sometimes fire departments, among other things.
The proposed reduction has led Shiloh to hold off on creating a public works director position as the village had planned.
Eckert said he hopes legislators and the governor would be able to find a solution to the issue. He added that he wished the legislature had a plan in place for how to handle the state’s finances before the income tax rate rolled back to 3.75 percent.
“I think the governor and legislators know they have to do some serious collaboration on pension reform,” Eckert said. “Pension reform has to be on the top of the list. It’s bleeding the state and has a trickle-down effect on all of us.”
Some towns have begun to plan in case the cuts take place.
“We’re trying to … come up with contingency plans of what we’ll do when faced with these types of cuts,” said Jamie Maitret, the finance director for Belleville.
Belleville estimates it would lose $2.2 million a year if Rauner’s proposal went through.
Even if the cut is 25 percent, it would mean $1.1 million less for Belleville, which has a general fund budget of $27.5 million. That still would force the Belleville City Council to make tough decisions to find a way to close a budget gap, Maitret said.
“It’s really hard to accomplish without cuts to service or increase taxes,” Maitret said.
“We can cut as many supplies and little things here and there,” Maitret added. “That’s not going to get you $2 million.”
Maitret said when the state temporarily increased the income tax to 5 percent from 3 percent, municipalities didn’t see an increase in funding.
“We didn’t get to reap that benefit when they increased it, but now, we have to give that up,” Maitret said.
In Collinsville, the city estimates the proposed cut would cost the city about $1.25 million a year, said City Manager Scott Williams.
Williams said it would be a large cut out of the city’s $20 million general fund budget.
“It’s going to hurt,” Williams said.
Williams said he does expect some sort of reduction to come down from Springfield.
“I believe there will be cuts,” Williams said. “I have no idea what those cuts will be (but) it will impact our future budgets.”
Under the current system, about 8 cents out of every $1 collected in state income tax goes back to municipalities, based on their population.
“Municipalities are on the front lines of providing services to people of the State of Illinois,” said Joe Schatteman, the deputy legislative director of the Illinois Municipal League. “If they see a reduction in the revenues ... they will see a reduction in services they can provide.”
Schatteman added that reserves municipalities have are for emergencies or for when local governments are saving up for a large infrastructure project.
“If you could take money saved and use it for an infrastructure project, rather than (selling bonds), you’re saving taxpayer money,” Schatteman said.
Walter Denton, the city administrator for O’Fallon, said reserves are not traditionally used for annual expenses. O’Fallon is projecting to receive about $2.6 million in state income tax transfers for the budget beginning May 1. The city could lose about $1.3 million to $1.4 million if the cut goes through.
O’Fallon used reserves to pay for a new fire station and didn’t take on debt for the project.
“Operating expenses should only be for with annual recurring revenue,” Denton said. “You can’t use reserves to pay salaries. Next year, you have the salary costs, but the reserves are gone. That’s a poor way of budgeting for stability in the future. It’s not a long-term solution.”
State Rep. Jay Hoffman, D-Swansea, said the proposed cut would have many negative effects on municipalities.
“First of all, if that money were to go away, it would have a drastic impact on local police and fire,” Hoffman said. “Secondly, if the Local Government Distributive Fund ceases to exist, or is cut back ... it would put huge upward pressures on local property taxes, which I believe are the most unfair tax, to ensure there is adequate police and fire protection.”
Hoffman conceded that cuts will most likely be a part of a budget that comes out of the General Assembly.
“It’s hard to predict that specifically, but there will be cuts in this budget because we have a terrible budget deficit,” Hoffman said. “The issue is, can we ration it in such a way that causes the least amount of harm to local governments, public safety, education and healthcare?”
“I think it needs to be a mixed approach with a long-term budget solution. … it would include some painful cuts and revenue,” Hoffman added. “Whatever that looks like has to be negotiated with the governor.”
State Sen. Dave Luechtefeld, R-Okawville, said Rauner’s budget is only a proposal at this point. Luechtefeld said he understands why different entities are saying what could happen if the proposed cuts take place, and some towns are struggling.
Luechtefeld added that there needs to be reforms to workman’s compensation, and reforms on mandates put onto local taxing bodies, among other things.
“I’ve never seen a budget that a governor wrote up that we end up with,” Luechtefeld said. “(But) I think he highlighted some things that needed to be highlighted … Rauner said we’re not going to look at new revenue, and I agree with him.”