DECATUR (Illinois Policy Institute) — After passing an unbalanced budget in 2017, Decatur will have to address its declining population and revenue as it looks ahead to crafting future budgets.
Gov. Bruce Rauner’s budget proposal for fiscal year 2019 continues a reduction to a state financial shell game. While ultimately a benefit for Illinois taxpayers, it’s a move that will force shrinking cities to reform local finances.
As part of the fiscal year 2018 budget state lawmakers passed in July 2017, the Local Government Distributive Fund, or LGDF, was cut 10 percent, a funding level Rauner is recommending for his 2019 budget as well. LGDF distributes shares of state personal and corporate income taxes to local governments not based on need, but on share of the state population, usually accounting for 3 to 6 percent of a local government’s revenue.
This subsidy from state government fuels reckless spending and unaffordable benefits at the local level. Considering Illinoisans pay among the highest property taxes in the nation, continuing to reduce LGDF is an important step forward for taxpayers.
However, since the fund is based on population, shrinking cities will feel the effects first and foremost. No city would feel that more than Decatur, Illinois’ fastest shrinking city.
Decatur’s fiscal year 2018 budget, passed in December, was more than $3 million out of balance, in large part due to Decatur’s shrinking tax base. Revenue from sales taxes, cables taxes and hotel taxes all declined, a direct result of Decatur’s significant population dip. From 2010 to 2016, Decatur’s population dropped 3,400, or 4.5 percent, making it the fastest shrinking city in Illinois with a population over 50,000.
That population loss also accounted for a loss in LGDF funding: Decatur lost $1.4 million in state revenue due to both its population shrinking and the reduction in the fund.
In addition to the subsidy from state government, Decatur has relied on tax hikes in the past to compensate for its population loss, including instituting a food and beverage tax, hiking its gas tax and raising its property tax levy, intensifying the burden on struggling taxpayers. To the city’s credit, Mayor Julie Moore Wolfe told WAND-TV in December that another tax hike would not be ideal for Decatur residents. But given the rapid rate at which the city is shrinking, it needs to find ways to reform its finances moving forward.
Likewise, the state of Illinois should not restrict Decatur’s ability to get spending under control. Reducing LGDF funding is a positive step. But additionally, reforms to make Illinois’ workers compensation system more competitive with the rest of the Midwest would be a boon for Decatur employers and employees alike, as would reforms to collective bargaining for government worker unions and broken state and local pension funds. All of these spending reforms can help a city like Decatur grow and meet its budgetary challenges ahead.
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