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The state of the State

Redistribution of taxes



Illinois state government will begin this month distributing more money to high population growth areas and less to older cities and rural areas that have lost population. The redistribution comes without legislative action and generally will shift money from Democratic strongholds into Republican areas. The effect depends on your point of view. Those who will lose money see it as the rich getting richer. Those gaining money see the change as a more fair return on what they pay to the state.

The impetus for the redistribution comes from preliminary 1990 population counts that the Illinois Department of Revenue will commence using to compute cities', villages' and counties' shares of state income tax receipts. This state revenue sharing is a lot of money. For fiscal year 1990 (the year that ended June 30, 1990) that aid exceeded $650 million, or about $56 per resident. Half came from the 1989 income tax surcharge and half from local governments' one-twelfth share of the basic income tax. Local governments' share will grow further in fiscal year 1991 (the year ending June 30, 1991) as income tax receipts grow.

Population is the basis for distributing local governments' share among all municipalities and counties, and the 1990 preliminary census (still subject to revision) confirmed what all knew, that Illinois population growth for the decade was largely confined to the suburbs in the metropolitan Chicago area. They are the winners. Between 1980 and 1990 growth in DuPage County was 122,831, in Lake County 76,046, in suburban Cook County 73,258, in Kane County 39,066, McHenry County 35,334, and Will County 32,853. The only other county with five-figure population growth was McLean, which increased 10,031.

Since the state's population increased a mere 4,000 to 11,430,602, most other counties lost population. In all, 21 counties gained while 81 counties lost population. The big losers were Peoria County, down 17,639; Rock Island County, down 17,245; and Macon County, down 14,169. Among cities the biggest single loser was Chicago, which lost 221,346 residents. In percentage loss, East St. Louis suffered worse, losing one in four residents between 1980 and 1990 as its population dropped from 55,200 to 40,944.

The shifts in population translate to great shifts in shares of the income tax. For example, DuPage County and its municipalities will receive a total increase of more than $3.6 million per year. Elsewhere in the metropolitan Chicago area the pattern is similar. Winners include:

Arlington Heights, up more than $550,000 annually.
Aurora, up nearly $850,000.
Cicero, up more than $350,000.
Lake Forest, up more than $150,000.
McHenry, up more than $150,000.
Of course there are losers, namely:
Chicago, down more than $13.2 million.
Decatur, down more than $600,000.
East St. Louis, down more than $850,000.
Peoria, down more than $675,000.

One caveat is in order. The amounts assume the extension of the income tax surcharge at the current level and maintenance of local governments' share of the surcharge. Neither is certain, but the patten of redistribution is evident.

The areas of suburban population growth are simultaneously experiencing rising property taxes from their local governments, and the new state income tax money could provide some easing of that property tax burden.

Rising property taxes in Illinois have made voters unhappy. Republican gubernatorial candidate Jim Edgar pledged during the campaign to call state lawmakers into special session to address the problem, Now, Gov. Jim Edgar must make good on that pledge with the state treasury bare. The problem is real as evidenced by the fact that throughout the 1980s property taxes have been Illinois' fastest growing

10/March 1991/Illinois Issues

major tax source. A 1990 study by the Illinois Economic and Fiscal Commission put property tax growth between 1981 and 1987 at 41.2 percent, well above the growth of assessed property value and well above inflation.

Property taxes are more onerous in Illinois than in other states because Illinois relies relatively heavily upon them. They are "the tax" of Illinois' 6,000 local governments. National figures put Illinois local governments' dependence upon property taxes at 25 percent above the national average. In contrast, Illinois local governments trail national averages in state assistance and in use of user fees.

The solution seems simple. Lower property taxes and replace the money with some other tax, preferably the income tax. The difficulty with the replacement option is the sheer size of the property tax. Property taxes extended (billed) in 1989 totaled $8 billion. To reduce property taxes by 20 percent and replace the money with income taxes would require a 33 percent increase in the state income tax rates (to 4 percent from 3 percent for individuals and to 6.4 percent from 4.6 percent for corporations).

Raising income taxes 33 percent to allow a 20 percent cut in property taxes is not a politically popular solution. But the 1990 population-based redistribution of local governments' share of state income taxes will funnel more money to the property tax heavy suburbs without having to raise any tax. There are limitations. Counties and municipalities account for only about one quarter of property tax bills. School districts, airports, libraries, soil and water districts and a plethora of other local governments use the property tax. Without some sort of state government action, there will be no guarantee of property tax relief.

There is one irony worth noting: The 1989 surcharge was crafted to provide money to close a Chicago budget gap. It did that. Now the extension of the surcharge promises to take some of the pressure off the property tax base in high growth suburban areas, but that relief will come at the expense of Chicago and other cities that have lost population and are searching for money to continue basic services. That irony complicates extending the surcharge because the shrinking areas are generally Democratic and the growing areas Republican.

March 1991/Illinois Issues/11

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