Financing city services has become a major task as public officials and city administrators try to finance a complex set of public services provided under a growing list of rules and mandates with budgets that sometimes barely keep pace with the rate of inflation. Making matters even more difficult has been the significant resistance offered by taxpayers to property tax increases, even when cities are not the cause. Most cities have faced property rate limits for many years and those in Cook County and suburban counties recently were placed under tax caps. An effort to extend the option for similar caps downstate passed the General Assembly this session and was signed into law in July.

This article examines recent trends and patterns in revenues collected by Illinois municipalities, based on data collected by the Bureau of the Census, Governments Division. This information is gathered for all local governments every five years and the most recent data (FY 1992), became available in May 1996. While the data is not as current as one might like, it is the only continuous data series that permits a longitudinal comparison with a consistent set of finance categories.

In this article, we examine trends since 1977 with specific attention paid to the revenue patterns in 1992. The comparisons are made in both nominal dollars and in real purchasing power (that is, with inflation removed) To facilitate comparisons, cities are presented in three categories: all Illinois cities larger than 25,000.

Chicago suburbs; and mainly free-standing cities in downstate Illinois. This breakout facilitates comparisons with previous years but is also used because many issues faced by cities differ between groups. Municipalities larger than 25,000 are included because most of these cities have home rule authority and, therefore, have widespread discretion in making fiscal policies. A separate analysis is currently underway for cities smaller than 25,000, most of which are non-home rule; that analysis will be presented in a later article.

Revenue Comparisons
Comparisons among cities are easiest when revenues are divided by population to adjust for the effects of city size. Between 1977 and 1992, per capita revenues increased from $237.71 to $641.24, an increase of 169.8 percent (Table 1). Much of the increase, however, was in the early 1980s. Between 1987 and 1992, the increase was 22.9 percent in current dollars; but, when inflation has been considered, general revenues in constant dollars declined 1.6 percent. Thus, city officials had fewer revenues for services in 1992 than in 1987. Between 1977 and 1992, resources increase 24.2 percent in constant dollars.

The slow growth in revenues occurred for several reasons. First, some revenue instruments simply did not grow rapidly, perhaps due to a relatively weak economy. Second, public pressure to constrain property taxes and reduce government slowed budget growth in some instances, especially downstate cities.

A noticeable difference is found between Chicago suburbs and downstate cities. The increase in real revenues in the suburbs was 4.3 percent between 1987 and 1992, compared with an 8.1 percent decrease in independent cities. Housing construction and economic expansion in the suburbs in the late 1980s and early 1990s surpassed the growth in most downstate cities.

Intergovernmental Aid. A more detailed comparison, by revenue source, reveals a substantial shift in funding away from the Federal government. In constant dollars, the revenues received from the Federal government declined 73.4 percent between 1977 and 1992 and declined 65.5 percent between 1987 and 1992. A conservative movement at the Federal level explains most of this change. In 1992, the average Illinois city larger than 25,000 received $13.19 per resident in Federal aid, compared with an average of $30.63 per resident in 1982.

Offsetting growth, however, occurred in state resources provided to cities. This aid increased from $32.58 per resident in 1977 to an average of $177.92 per resident in 1992. Even in constant dollars, the increase was 151.4 percent. This increase includes an increase in the state income tax, a portion of which was shared with cities and school districts. The city portion was changed in 1991 and some of this difference may not be fully reflected in the 1992 figure. In addition, the local sales tax was made a part of the state sales tax (although technically still a local tax). Cities formerly charged a one percent local sales tax with an option for home rule cities to collect additional sales taxes. In 1990, the local share of the sales tax was incorporated into the state sales tax. The revenues now appear as revenue sharing from the state government, rather than as a local tax.

This revenue growth is partly explained by changes in the way revenues are counted. It also represents growth in revenues from the income tax increases. With these changes, state revenue sharing has become a relatively large revenue source for cities compared with earlier years. A comparison of state aid in suburbs and independent cities reveals increases of 191.6 percent in the suburbs and 123.0 percent in the average independent city between 1977 and 1992.

Own Source Revenues. In addition to intergovernmental aid, the other main revenue source is from

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*Calculations based on 54 Illinois cities, with populations of 25,000 or more in 1977, excluding the City of Chicago.

Source: U.S. Bureau of the Census. Census of Governments, Finances of Municipal and Township Governments, 1977 and 1982; U.S. Bureau of the Census. Census of Governments, Finance Statistics, computer tapes, 1987 and 1992; and IIRA and IML. Illinois Municipal Price Index, 1994

Revisions, Macomb, IL 1994

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Source: U.S. Bureau of the Census. Census of Governments, Finances of Municipal and Township Governments, 1977 and 1982; U.S. Bureau of the Census. Census of Governments, Finance Statistics, computer tapes, 1987 and 1992; and IIRA and IML. Illinois Municipal Price Index, 1994 Revisions, Macomb, IL 1994.

local taxes, charges and fees. These revenues increased from an average of $178.67 per capita in 1997 to $445.89 per capita 15 years later. Removing the impact of inflation, however, reduces the increase to 14.9 percent. The average revenues collected by cities from local sources in 1992 were $205.27 per resident in 1977 dollars. This amount was down 15.4 percent from 1987 but the decline includes the change in classification of sales taxes as well as changes in the way that food and drugs are taxed.

The revenue source receiving greatest attention in the news media is property taxes on real estate. Property taxes have been controversial because, in many places, the economic expansion and demand for housing have inflated housing prices. Property taxes are based on assessed valuation, and property taxes increase when local officials levy higher amounts. Taxpayers, while they may be wealthier in asset ownership, are pressured by property taxes when their incomes do not increase proportionally.

While some taxpayers may find it difficult to comprehend, the growth in property tax collections by municipalities has been relatively small or even nil in constant dollars. In nominal dollars per capita, property tax collections were $70.09 in 1977 compared with $144.77 in 1992, an increase of 106.5 percent. Removing inflation reduces the $144.77 to $66.65 per capita, a decline of 4.9 percent.

Suburbs and independent cities have differed substantially in property tax collections. Not only do suburbs collect higher property taxes ($175.67 per capita) than independent cities ($107.72 per capita), they also had substantially different percentage increases. Between 1977 and 1992, suburban property tax collections (city) increased 15.4 percent, compared with a decline of 22.9 percent in independent cities. This difference partly explains why pressures for property tax caps have not been as prevalent in downstate Illinois.

Local sales taxes decreased between 1987 and 1992 and the taxes shown probably reflect the taxes, including sales taxes, imposed by home rule cities. Since large cities are more likely to impose these taxes, a significant proportion of the population is affected. The reduction is caused by changes in the tax base (food and drugs) as well as changes in the classification of sales taxes from local taxes to state share taxes, as far as the Census tabulation is concerned.

The major revenue growth occurred in charges and miscellaneous revenues which increased 58.9 percent in constant dollars. During the 1980s, significant pressures were exerted on many governments to fund services from fees so that those residents directly benefiting would pay for the service. In the 1990s, cities initiated privatization efforts and contracted for services. Placing more services on a fee basis explains the growth in this revenue category and some of the stimulus may have arisen from pressures on property taxes. In real terms, the growth in charges and miscellaneous revenues was substantially higher in the suburbs (95.9 percent) than in downstate cities (31.8 percent).

Revenue Reliance
Another comparison of revenue sources is based on the relative importance of each revenue source in

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total revenues. For instance, intergovernmental aid represented 24.8 percent of revenues collected in 1977, but by 1992, it represented 30.5 percent (Table 2). This change included a decrease in Federal aid from 9.6 percent of the revenues in 1977 to 2.1 percent in 1992. At the same time, state aid went from 13.7 percent to 27.7 percent of revenues, including the sales tax adjustment.

Property taxes represented 29.5 percent of revenues collected by cities in 1977, but had declined to 22.6 percent by 1992. Charges and miscellaneous revenues were 18.9 percent in 1977, but by 1992 had increased to 24.1 percent, down from a high of 31.4 percent in 1987.

Conclusions
Revenue comparisons in this article support several conclusions. First, in terms of purchasing power, statewide, cities have experienced growth in revenues of about 24.2 percent between 1977 and 1992, approximately 1.5 percent annually. Suburbs grew at more than twice the rate of downstate cities. Population growth and economic expansion supported a more rapid rate of increase in these cities.

Second, although intergovernmental aid increased substantially during this period, the growth was at the state level. Federal aid declined substantially but was more than replaced by increases in state aid, although some increases represent differences in how revenues are classified.

Third, property taxes in independent cities were lower in purchasing power in 1992 than in 1977 but the city portion increased in the suburbs at an average of 1 percent per year, in real terms. Property taxes also declined in relative importance as a revenue source during this period and, in 1992, represented slightly more than $1 for each $5 collected by cities.

Fourth, the main growth in local revenues came in charges and miscellaneous revenues as local officials placed more of the burden for financing services on those directly benefiting from the services. This trend, along with privatization efforts, will probably continue in the future. •

'The Illinois Municipal Price Index compiled annually by the Illinois Institute for Rural Affairs for the Illinois Municipal League is used to remove inflation from the revenues.

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