ILLINOIS INDEPENDENT CITIES KEEP PROPERTY TAX INCREASES BELOW FIVE PERCENT WITH USER FEES

A study of Illinois cities shows that even though federal aid to cities decreased 49.5 percent, in constant dollars between 1977 and 1989, property tax increases in most cities remained below the five percent tax increase limit under consideration by the Illinois General Assembly. The study of municipal finance in Illinois cities of 25,000 and larger, conducted by the Illinois Institute for Rural Affairs, groups cities into Chicago suburbs and independent cities.

"The main growth in revenues to support municipal services came from user fees and other miscellaneous revenue sources," said Norman Walzer, director of the Institute at Western Illinois University. In constant dollars, user charges and fees for services increased 83.1 percent between 1977 and 1989. The fees included water and sewer, parking fees, building permits and other charges for government services. In 1977, charges represented 21.3 percent of city revenues in independent cities but, by 1989, had increased to 31.4 percent.

Property taxes per person, in constant dollars, decreased 15.1 percent in Illinois cities during the same 12 year period, but most of the decline was prior to and during the recession and high inflation in the early 1980s. Property taxes decline in importance, however, in both Chicago suburbs and independent cities. Among suburbs, property taxes represented 32.6 percent of revenues in 1977 and 28.3 percent in 1989. In independent cities, property taxes were 27.4 percent of revenues in 1977 and 19.4 percent 12 years later.

Changes in equalized assessed valuation (EAV) per capita explain the differences in property tax changes with substantially higher growth in the suburbs than downstate cities. Mayors responding to an Institute survey reported the two main reasons for property tax increases in recent years are pensions and infrastructure maintenance and repair. Mayors reported inflation as a third important factor.

"During the 1980s, property taxes in most Illinois cities larger than 25,000 declined in relative importance as a revenue source," Walzer said. "This is true even though federal aid to cities declined markedly during this period. Instead local officials turned to other revenues such as user charges and fees for services to replace the lost revenues."

The data was compiled during 1992 based on a variety of federal and state sources including the U.S. Census Bureau, the Illinois Department of Revenue and a mail survey of mayors. •

Page 20 / Illinois Municipal Review / May 1993