Editorial: Keep state hands off municipal revenues

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Updated: October 16, 2011 12:16AM

The Illinois Legislature wouldn’t be thrilled if Congress suddenly decided to seize a chunk of state revenues on the grounds that Washington needs the money more than Springfield does.

But that’s what Springfield is talking about doing to municipalities and counties across the state. To close the state’s gaping budget gap, legislators are discussing siphoning off tax revenues that traditionally have gone to local government.

Cities, villages and counties around the state get much of their revenue from several taxes that are collected by the state and then redistributed: income taxes, motor fuel taxes, sales taxes, corporate personal property replacement taxes and some other minor levies. It’s a system that has been in place a long time. For example, to reduce the need to increase property taxes, local governments have been receiving a share of the state income tax ever since it was created in 1969.

In theory, counties and municipalities could collect the taxes without funneling the money via the state. But that would require whole new bureaucracies on the local level. It also would make individuals and businesses fill out a lot more forms every year. It’s easier for everyone if the state collects money designated for local governments along with its own share and then parcels the cash back out.

Unfortunately, that system also creates a temptation for Springfield to latch onto that money for its own purposes. Lawmakers are talking about taking $300 million off the top, or perhaps even the full $1 billion from the local share of the state income tax, the so-called “local government distributive fund.” A different plan by Gov. Pat Quinn would simply suspend the payments until next year. Springfield should resist the urge to do either.

Local governments face their own budget headaches. Their revenue from income taxes and sales taxes has been dropping along with the state’s, and the increase in the income tax imposed this year went entirely to the state, in effect cutting the local share from 10 percent to 6 percent. Local governments have been trimming their staffs, asking employees for givebacks and even laying off cops and firefighters. They’re in no position to absorb a loss of what could be about 10 percent of their total annual revenues. It’s safe to say you could expect panic at the city or village hall.

Moreover, their budgets already are in place for the coming year. They don’t have time to raise property taxes, even if they were inclined to, because the new revenue wouldn’t arrive this year. Poorer towns, with little developed property to tax, would suffer most. And smaller communities without home rule powers would have to pass referendums first, which wouldn’t be an easy sale in a bad economy. Most probably, local officials would have to make new cuts on top of those they’ve already made.

Diverting tax revenues back to the state would be a classic case of robbing Peter to pay Paul. The same taxpayers support government on both levels, but all they would get for their money would be short-term chaos and a trashing of long-term planning.

The discussions in Springfield are changing by the minute, leaving local officials worried about what might pass by the budget deadline on Tuesday. Legislators should find a way to resolve their budget problems without pushing local government budgets over a cliff.