What is the Local Government Distribution Fund?

Overview

The recent legislation to adopt police reforms (House Bill 3653) concerned many about a penalty if municipalities did not install body cameras for police officers by 2025. If the municipality failed to comply with the requirement, it would have face a 20 percent reduction in state funding from its Local Government Distribution Fund (LGDF) each year until it finally installed the body cameras. While this provision was eventually excluded from the final bill due to cost concerns, state support for municipalities, although necessary, is limited; especially in a depressed economy. Municipalities receive a fair amount of money from the state in order to cover operations and meet public needs. In effect, the LGDF should not be overlooked as a major revenue generator for local governments.

History

The Illinois income tax was adopted by the General Assembly in 1969. Because adding any new form of taxation was politically toxic, its success required a heavy lift in political capital. Then governor, Richard Ogilvie, sought and needed the support and clout of Mayor Richard J. Daley if any initiative on that scale would be successful.

Being the state’s premier public manager of local government and power broker, Mayor Daley was interested that the final bill include revenue sharing as a way for local governments to capitalize on future revenue gained. In the end, lawmakers got on board and the bill was passed.

What is the LGDF and How Does it Work?

The LGDF gives local governments a portion of the revenue collected from the state’s income tax. The state’s current income tax rate is 4.95 percent. It is a flat rate where everyone pays the same rate regardless of income level. Every year, the state collects income taxes and that money is allocated to the LGDF. The LGDF then distributes the funds to Illinois counties and cities to help fund municipal operations and deliver public services. The total amount of money each county and city receives is based on population. However, the state distributes 6.06 percent of the total amount collected on individuals and 6.85 percent on corporations to states and municipalities.