ILLINOIS NEWS NETWORK

A little-discussed provision of the Illinois state budget deal approved this summer is putting a crimp in the budgets of local governments that impose their own sales taxes.

A summary of the new budget’s effects from the Illinois Municipal League says the state will place a 2 percent service fee on certain sales tax funds owed to local agencies. The administrative fee, however, does not apply to the 1.25 percent share of the state’s 6.25 percent sales tax that now goes to cities and counties, according to the league.

The Illinois Department of Revenue estimates the 2 percent fee will amount to $60 million annually statewide.

Among the cities affected is Belleville, which imposes a 0.75 percent sales tax to support local government services. In addition, the Metro East city’s sales tax rate in six business districts is 1 percent higher than the rest of the city.

Belleville Mayor Mark Eckert told a St. Louis, Mo., radio station that Belleville is monitoring the situation closely because the city has been unable to replace some key employees, including police officers, due to dwindling state funds.

Eckert blamed the sales tax fee and claimed the state has also been withholding some gas tax funds from the city, according to a report on the KMOX website.

The mayor did not respond to Illinois News Network’s requests for comment, but minutes of a Belleville City Council meeting last month indicate that the mayor and other city officials estimate the city would receive about $150,000 less in sales tax funds this fiscal year as a result of the new fee.

The Illinois Department of Revenue denies that the state is stalling delivery of local governments’ share of the motor fuel tax (MFT). Those funds come from a 19.8-cent-per-gallon tax on fuel and are designated for the maintenance and repair of roads and bridges.

“We are not holding or delaying the distribution of the monthly MFT to local agencies,” Kelsea Gurski, a spokeswoman for the state Department of Transportation, said in an email to Illinois News Network.

In addition, the Lockbox Amendment, which Illinois voters approved last November, mandates that gas tax funds can only be used for transportation-related projects, such as roads, highways, airports and railways.

“As it pertains to local governments, local governments can use motor fuel tax money to pay the salary of specific people within a local agency,” Gurski said. These workers include municipal engineers and maintenance workers on roadways, she added.

But such funds cannot be used by cities to hire other personnel, including police officers.

The state’s 2 percent administrative fee on local sales taxes will be used to cover such costs as processing, audits, collections and distribution of the tax. Local governments could choose to administer locally imposed sales taxes themselves, but if they did so, they would likely incur similar costs.

Belleville currently has an 8.1 percent sales tax outside of its six business districts and a 9.1 percent tax within the districts, according to the city’s website. The extra 1 percent is used to pay economic-development debts within the districts.

The city’s use of tax increment financing (TIF) districts to revitalize parts of the city and provide incentives to retain and attract businesses has generated criticism in recent years. Critics see TIF projects as wasteful and leading to higher taxes over time. But supporters argue that it’s one of the only tools local governments have to accelerate economic development.

Mascoutah Mayor Jerry Daugherty, who serves as legislative committee chairman for the Southwestern Illinois Council of Mayors, expressed concern about the state assessing a fee on locally generated sales taxes.

“Anytime we get anything taken away, we have to make it up somewhere else,” Daugherty told Illinois News Network.

Cities that are more dependent on local sales tax revenues will be the most affected, and one of the few other alternatives for cities might be to raise property taxes, he said.

“The more you rely on the sales tax, the worse you are,” Daugherty said.

Mascoutah has not experienced any gas tax withholding by the state, according to Daugherty, and the sales tax fee won’t affect personnel issues because the city is not hiring now. But that could change over time, he said.

Some Belleville aldermen are also worried about the effects of the sales tax fee.

“We’ve become reliant on this money, and it’s not like it’s a handout,” Alderman Scott Tyler told Illinois News Network. “It’s owed to us.”

The fee is another indication of the state’s financial woes and overall indebtedness, according to Tyler. “Short of a federal bailout, I don’t know how Illinois recovers from this,” he said.

Alderman Ken Kinsella expressed concern about the city’s ability to hire police officers. The city needs to be sure it can hire new officers and not have to lay someone off next year due to dwindling funds, he said.

This story has been edited since initial publication to clarify that Kelsea Gurski works for the Illinois Department of Transportation.