Cash Scramble! Illinois Towns Eye Home Rule

Fearing a loss of crucial state funds, municipalities are pushing lawmakers to expand local taxing powers and fees. Business and tax watchdogs say, “no way”, a BGA Rescuing Illinois report finds.

The budget stalemate and political rancor in Springfield has prompted Illinois municipalities to take matters into their own hands.

With Illinois lawmakers and Gov. Bruce Rauner unable to agree on an annual budget, local communities fear the loss of money traditionally distributed to them by the state.

This threatened shortfall has cities, villages and suburbs throughout Illinois seeking new ways to raise cash on their own in order to pay for public works projects, residential services and everyday operating expenses, a BGA Rescuing Illinois report finds.

“The continued budget impasse has made it difficult for municipal finances. We want to give local governments more control over their own destinies.” 

-Brad Cole, executive director of the Illinois Municipal League

The Illinois Municipal League, a statewide advocacy group, is promoting legislation that would give more local cities and villages direct control over the collection and distribution of public funds. Specifically, the organization is backing a bill that would expand the number of communities eligible for “home rule” status, which would allow them to raise more money through local taxes and fees.

If the proposal were passed through a constitutional amendment, it would double the number of home-rule communities in Illinois to nearly 400.

“The continued budget impasse has made it difficult for municipal finances. We want to give local governments more control over their own destinies,” said Brad Cole, executive director of the Illinois Municipal League (IML), which represents 1,297 villages, towns and cities across the state.

But the proposal faces stiff opposition from a host of powerful lobbying groups and tax watchdogs who argue that local governments would be granted broad powers to raise taxes and fees, a burden that would largely be shouldered by businesses and residents.

“Illinois already has some of the highest property and sales tax rates in the nation. If you allow more communities to become home rule, it only adds to the taxes on consumers,” said Rob Karr, president and CEO of the Illinois Retail Merchants Association, which opposes the expansion of home rule.

Town Illinois

A looming threat

The impetus for the home-rule legislation is the threatened loss of funds distributed by the state to local communities. And these threats have become very real as Republican Gov. Rauner battles Democratic House Speaker Michael Madigan over a heap of budget issues, a struggle that’s gone on for nearly a year.

Their inability to pass a state budget temporarily cut off funding the state dispenses to municipalities through motor fuel taxes, casino and video gaming taxes, use taxes, and 911 surcharges on phone bills. When municipalities panicked, lawmakers and Rauner agreed in December to restore those payments even though they were unable to pass an overall budget.

The other worry is that Rauner will cut funding that municipalities receive from the state through income tax collections. In his 2015 budget address, Rauner said he wanted to reduce the amount traditionally released through the Local Government Distributive Fund, which would reap $600 million annually for the debt-ridden state coffers. 

For some local governments, loss of those revenues could represent up to 20 percent of their operating budgets.

The ongoing state budget impasse has delayed any action on Rauner’s proposal. But all this financial uncertainty has made local communities edgy, prompting the Illinois Municipal league to float the home rule expansion measure this legislative session.

“All of these possible revenue losses are why it’s important for local governments to have more control over their finances,” Cole said.

Town Illinois

History of home rule

Home rule was added with passage of the 1970 Illinois Constitution, with this broad definition:

“… A home-rule unit may exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax, and to incur debt.”

The constitution automatically gave home rule powers to units of local government with populations of 25,000 and above. Those units of government include cities, towns and villages, counties and townships. Local governments under the 25,000-population threshold could also become home rule through a voter referendum.

Over the years, communities have used home rule power less for issues of “public health, safety, morals and welfare,” and more to raise revenues through taxes and fees, municipal experts note.

A home-rule community, for example, is not bound by a state law that caps annual municipal property tax increases to 5 percent or the rate of inflation, whichever is lower.

And home-rule communities can generate money from sales taxes, gasoline taxes, hotel/motel taxes, and real estate transfer fees taxes, among others.

Today, there are 211 home-rule communities among the 1,297 municipalities across the state. Most have earned that designation by exceeding the 25,000-population threshold.

Others have achieved the designation through voter referendums. But this is, at best, a 50-50 proposition.

Of the 191 home-rule referendums on the ballot between 1970 and 2000, 97 passed and 94 failed, according to the last definitive study, a 2002 report from the Center for Governmental Studies at Northern Illinois University.

In the recent Illinois March primary, Summit voters approved the village’s home-rule referendum, while similar measures failed in Franklin Park and Westchester.

“The reason many of these fail is that people are afraid you’ll raise their taxes. You have to gain their trust and convince them you won’t abuse the power,” said Summit Village President Sergio Rodriguez, who worked to gain passage of his village’s home-rule referendum by a narrow margin of 954-820.

Expanding home rule

The Illinois Municipal League is proposing a different route: amend the Illinois Constitution so the population threshold for home-rule communities is lowered to 5,000. That would allow another 173 communities to gain home rule.

“I don’t think lawmakers are in the mood to do anything that would allow local officials to raise taxes. Then, where do you think you will get the votes on a constitutional amendment asking voters if they want their taxes raised?”

-David Yepsen, director of the Paul Simon Public Policy Institute at Southern Illinois University

More communities need this measure because of the budget uncertainty in the Illinois general Assembly, said State Rep. Mike Smiddy (D-Hillsdale), sponsor of the measure. He’s heard from mayors who have seen losses or delays in state distributions to municipalities of motor fuel taxes, used to repair local roads, and 911 phone surcharges, used to run emergency dispatch centers.

“The issues we are having in Springfield make this legislation more viable,” Smiddy said. “Municipalities are being held hostage because they have to rely on everything coming from the state. We have to give local communities every chance to succeed.”

But the measure faces many obstacles to gaining passage.

Smiddy’s bill currently sits in the Illinois House Rules Committee. With little evidence that lawmakers and the governor will agree on a budget or any other major issues, most observers have doubt about the home-rule measure.

“This is something that is going to require some heavy lifting. And this is a legislature and governor who do not do heavy lifting on anything,” said David Yepsen, director of the Paul Simon Public Policy Institute at Southern Illinois University.

Even if the bill were to make it out of committee, because it is a constitutional amendment, it would require approval of three-fifths of the lawmakers in the Illinois General Assembly for it to become a referendum on the ballot.

Then three-fifths of the voters would need to vote in favor.

“I don’t think lawmakers are in the mood to do anything that would allow local officials to raise taxes,” Yepsen said. “Then, where do you think you will get the votes on a constitutional amendment asking voters if they want their taxes raised?”

Opposing forces

Then there are outside opponents both big and small. Among the big: the Illinois Retail Merchants Association and the Illinois Association of Realtors. Retailers and restaurateurs fear additional sales taxes, and real estate agents complain that home-rule communities raise property taxes and tack on taxes and fees to the sale of property.

“Home rule means home ruin. “If it ever becomes a ballot referendum, we’ll defeat it easily.”

-Jim Tobin, president of the Taxpayers United of America, a Chicago-based tax watchdog

“All we want is for the General Assembly to put the issue before the people. We’re not asking lawmakers to take a position. Let the voters decide.”

-Brad Cole, executive director of the Illinois Municipal League

“Whenever a community has home-rule powers, you’ll see new inspections and fees and transfer taxes. Transfer taxes are paid by the seller because local official want to charge the person leaving town,” said Mike Scobey, assistant director of government affairs for the Illinois Association of Realtors.

“And home rule communities are exempt from the property tax-cap statute,” Scobey continued. “It may not happen right away, but it could happen over time.”

If the powerful lobbies can’t keep the amendment from leaving the floor of the General Assembly, the tax watchdogs are lying in wait.

“Home rule means home ruin,” said Jim Tobin, president of the Taxpayers United of America, a Chicago-based tax watchdog. “If it ever becomes a ballot referendum, we’ll defeat it easily.”

Brad Cole, executive director of the Illinois Municipal League, said the focus of the home-rule measure shouldn’t entirely be on raising revenue. He mentions a 2011 study from the Center for Governmental Studies at Northern Illinois University suggesting that a town’s debt rating rises simply because it is a home-rule community. That’s because the bond ratings services know the municipality has more sources of potential revenue, according to the study.

No matter which side of the home-rule argument people may fall, Cole thinks the inaction in Springfield makes the time ripe for a referendum.

“All we want is for the General Assembly to put the issue before the people,” Cole said. “We’re not asking lawmakers to take a position. Let the voters decide.”


Expert: Home Rule Doesn’t Mean Property Tax Hikes

Just because a community gains home rule doesn’t necessarily mean its residents pay more taxes, said Rebecca Hendrick, a political science professor at the University of Illinois at Chicago.

In her 2011 book, Managing the Fiscal Metropolis, she compared the fiscal practices of 240 Chicago suburbs. She found that home-rule communities, when they did add new taxes and fees, tend toward “exportable” taxes that would be paid by visitors rather than residents.

Examples would be hotel/motel taxes, food and beverage taxes and real estate transfer fees.

When it came to raising property taxes, home-rule communities were as conservative as non- home-rule towns, she said.

“Home-rule communities behaved as if they were non home-rule communities,” Hendrick said. “They preferred exporting the burden rather than raise property taxes.”

— John Slania

About the Author

John T. Slania

John Slania is a regular BGA freelance contributor who often writes about policy issues.