Over the years, various voices in Chicago have supported adding a city income tax to the laundry list of government taxes and fees residents of the heavily indebted city are forced to pay.
Other cities across Illinois, including Kankakee, Alton, Danville, Peoria and more, also have crushing local government debts.
The Illinois Constitution currently allows certain larger cities to impose local income taxes, with state lawmakers’ approval – but no cities in Illinois currently collect income taxes. Because the constitution also states everyone must be taxed at the same rate, it would be wildly unpopular to impose an income tax on a whole city.
That could change if the progressive tax is approved Nov. 3.
If the Illinois Constitution’s flat tax protection were given up by voters, local governments would be able to target specific income brackets for taxation. Divided, city taxpayers fall: it becomes politically easier for state lawmakers to support local income taxes if they no longer can be blamed for taxing everyone.
Initially state lawmakers saw the potential for city taxes to spread and included language in the amendment proposal that prohibited them. That changed by the time they approved the ballot question, and the current progressive tax amendment offers no protection against local income tax hikes.
The appeal of a city income tax would not necessarily be limited to leaders in Chicago.
Many Illinois cities have been under fiscal strain for years, with mounting pension debt putting pressure on budgets. Add to that the COVID-19 economic crisis with plummeting sales tax collections and other declines in revenues, and many municipal leaders are seeking more funding sources. An Illinois Municipal League survey revealed 87% of responding municipalities face 20-30% revenue shortfalls in 2020 compared with 2019.
Even before the COVID-19-related economic crisis and shutdown, Peoria had cut positions in its police force and fire department and imposed a public safety pension fee to fill a hole in its budget caused by mounting police and fire pension costs. In 2020, Peoria city leaders debated throughout spring and summer how to close $10 million of the city’s $50 million COVID-19-related budget hole. In September, the city council voted to decommission two fire engines, which, at the time was expected to result in the elimination of 22 fire department positions, though a recently negotiated settlement of the firefighters’ union’s unfair labor practices lawsuit could keep one of the engines in service into 2021.
In Springfield, the budget director warned in 2019 the city needs nearly $270 million more in additional revenue during the next 20 years to pay for its escalating pension costs. Springfield now has an $8 million-$11 million shortfall related to COVID-19. Springfield Mayor Jim Langfelder said he opposes tax hikes, but balancing the budget will be a challenge with pension obligations restricting the city’s room to maneuver.
Like Chicago, Peoria and Springfield, many other Illinois municipalities – such as Alton, Kankakee and Danville – face severe fiscal problems with few ways to balance their budgets other than service reductions or tax hikes. In an era of increasing pension costs and a COVID-19 economic crisis, many local leaders of cash-strapped municipalities might find progressive city income taxes hard to resist.
But they should, and voters should prevent the temptation. Adding city income taxes to Illinoisans’ already high tax burden would damage struggling municipalities by dampening economic growth and job creation, driving out residents and making it even harder for small businesses to recover.
Illinoisans should be aware: Stripping the Illinois Constitution of its flat tax protection could create damage far beyond the tax hikes already promised.