UIC, UIS professors discuss municipal budgets during pandemic

McDONOUGH COUNTY — On Thursday, public administration professors from the University of Illinois Chicago and the University of Illinois Springfield held a Zoom webinar about how the COVID-19 pandemic has affected Illinois municipal budgets.

Mike Delaney, a community and economic development educator at the University of Illinois Extension office in northern Illinois, introduced the three public administration speakers and their respective topics. Speakers included UIS research scholar for Illinois Institute for Public Finance Arwi Kritz, UIC public administration professor Yonghong Wu and UIS public administration professor Beverly Bunch.

Municipal budget structure

Kritz, the first speaker, gave an overview of the municipal budget structure. She said a weakness of Illinois municipal budgets which has emerged during the pandemic are their reliance on universal guidelines, rather than the ability to customize budgets to a specific municipal profile based on population, socio-economic demographics and equalized assessed value of property values and taxes.

The research scholar said 134 Illinois municipals were sampled to see which municipal category they would fit if the municipal budget was customized to a specific profile. She said Chicago had its own category because only Chicago fits the metropolis category. Other municipal profiles which Kritz said could be used in Illinois include Cook County industry municipalities, college towns, the capital city, large cities with strong economic bases, small communities with increasing population and decreasing property values and small communities with both decreasing population and property values.

Based on Kritz’s data, Macomb would fit in the college town profile. For the college town profile, Kritz recommended college towns build a larger fund balance and develop and expand their equalized assessed value of property values and taxes. The other McDonough County communities were not part of the sample.

Municipal sales and property taxes

Wu, the second speaker, started his presentation by talking about municipal sales and property taxes because those two taxes are the most important revenue sources in Illinois municipalities. He said according to the 2017 census of government data, Illinois municipalities received 40 percent of property tax revenue and nine percent of sales tax revenue. He said that if one looked at the local general revenues, one would find that that property taxes account for 60 percent of revenue and sales tax accounts for 13 percent of revenue.

For the local sales tax, Wu said both home rule and non-home rule municipalities could impose a sales tax in 0.25 percent increments. He said that while home rule communities had no maximum rate limit, non-home rule communities were limited to a maximum rate limit of one percent.

The UIC professor said before the Wayfair ruling by the United States Supreme Court in June 2018, both the state and local communities did not collect much sales tax revenue on internet sales because states could only collect internet sales tax on businesses with a physical presence in the state. When the ruling became into effect, the Supreme Court allowed states to collect internet sales tax from businesses that do not have a physical presence in that state.

Wu said the COVID-19 pandemic has also affected spending, which in turn has affected sales tax revenue. He said when the stay at home order came into effect on March 21, the total consumer spending dropped by 40 percent. He said restaurants and hotel spending dropped by 70 percent and retail spending dropped by 30 percent on March 21. He said while retail spending went up during the stimulus payments and the slow reopening of Illinois businesses, both total spending and restaurant and hotel spending went down. As of Sept. 26, Wu said total spending went down by 7.2 percent while retail spending went up by nine percent and restaurant and hotel spending went down by 31.9 percent.

For property taxes, Wu said non-home rule communities were restricted to the lower five percent of the previous year’s inflation rate due to the Property Tax Extension Limitations law. He mentioned if a non-home rule community needed to increase property taxes beyond the Property Tax Extension Limitations limit, the community could ask the voters for an increase.

During and shortly after the pandemic period studied, Wu said sales tax revenue went down slightly with home rule communities doing better than non-home rule communities. He recommended that communities increase their property taxes during the pandemic to offset the lack of revenue from both local sales taxes and state transfers.

Volcker Alliance and truth and integrity in state budgeting

Bunch, the last speaker, spoke about the Volcker Alliance and truth and integrity in state budgeting. She said the Volcker Alliance was a nonprofit organization founded by former Federal Reserve chairman Paul A. Volcker in 2013.

“The mission of the Volcker Alliance is to advance effective management of government to achieve results that matter to citizens,” Bunch said. “One of the Volcker alliances major initiatives is the truth and integrity in state budgeting project that has been spanning multiple years.”

The UIS professor said the Volcker Alliance looked at how states used their budgets based on five major factors: budget forecasting, reserve funds, budget maneuvers, legacy and transparency. She said that while Illinois did well in multi-year revenue forecasting, multi-year expenditure forecasting and justifications of revenue estimates, the state did not use consensus revenue estimates for the Governor’s Office of Management and Budget and the Commission on Government Forecasting and Accountability.

“Illinois does several one-time mechanisms as opposed to identifying recurring revenues to finance recurring spending,” Bunch said. “This includes the use of debt. We have a huge backlog of unpaid vendor bills, currently $8 billion during the budget impasse was over 16 billion. And part of the reason it is lower now than it was is the state-issued $6 billion in bonds to pay down the vendor bills. Those vendor bills have extremely high interest between nine and 12%, depending on the type of bill.”

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