Estimate of Fiscal Year 1989
State Collected Municipal Revenue

By LARRY FRANG
Director of Fiscal Programs, Illinois Municipal League

League staff is occasionally asked to estimate sales tax, income tax, motor fuel tax and corporate personal property tax replacement revenue for municipalities. Year to year growth in these revenue sources varies more than one might expect if the fiscal year changes. This occurs because these taxes are cyclical and a fiscal year different by only two or three months can include more high or low months due to a change in the business cycle. In addition, State revenue has varied widely due to changes in rates and exemptions which start or end at specific dates. This article is written for a municipality with a Fiscal Year beginning on May 1.

Proposals for raising State tax rates or expanding State tax bases are now being considered by the General Assembly. This article is written using the assumption that tax rates and bases do not change.

Table 1 lists the actual amounts received from Fiscal Year (FY) 1980 through FY 1987. It also lists FY 88 amounts where only the last month is estimated. Finally, FY 89 amounts are projected. Actual month by month receipts are listed in Tables 2, 3 and 4.

SALES TAX
Total municipal sales taxes have grown about 4.5% in the last fiscal year. Current income and retail sales projections tend to support similar growth in FY 89. One point of caution to remember is that statewide sales growth is not uniform among municipalities. Economic recovery and hence growth in retail sales has been much faster in the Chicago suburban area than in most of the rest of the State.

All municipal sales taxes references in this article are to statutorily authorized, state collected municipal sales taxes only. No home rule municipal sales taxes are included. This article also excludes all sales tax payments made in March, 1987 as a "speed up" for municipalities that received over $500,000 in sales tax in 1986. Also excluded are the interest payments which have been paid for the first time in 1987 for interest earned by the State on balances held while allocations among municipalities are being calculated.

We forecast 4.4% statewide municipal sales tax growth in FY 89. This estimate has only limited value because of the wide disparity in local sales tax growth rates. Current State estimates of State sales tax are 4.4% by the Bureau of the Budget and 4.8% by the Illinois Economic and Fiscal Commission, but both these estimates are for a fiscal year starting two months later. Local sales taxes are held by the State for up to two months so the State estimates are for revenue equivalent to a municipal fiscal year beginning in September rather than May. In addition, the State sales tax base excludes food and drugs. The rate of increase in food and drug prices has been and is expected to be lower than the overall inflation rate.

INCOME TAX
The municipal share of State income tax is estimated to be $27.30 per person in FY 88. This is 9.4% higher than the $24.96 per capita in FY 87. We project $28.40 per person for FY 89 or 4.0% over FY 88. We actually project growth between 6.5 and 7 percent in the coming year

TABLE 1 — MAY 1 TO APRIL 30 MUNICIPAL FISCAL YEAR
STATE DISTRIBUTED MUNICIPAL REVENUE

	FY 89 Projected	FY 88 Estimated	FY 87 Actual	FY 86 Actual	FY 85 Actual	FY 84 Actual	FY 83 Actual	FY 82 Actual	FY 81 Actual	FY 80 Actual
Total State Collected Municipal Sales Taxes (Thousands of $)	735,000	704,000	673,841	631,841	602,004	558,693	525,498	513,648	491,369	495,519
Percentage Change in Sales Tax From Previous Year	4.4%	4.5%	6.6%	5.0%	7.8%	6.3%	2.3%	4.5%	(0.1%)	12.9%
Annual Per Capita Income Tax Distribution to Municipalities	$28.40	$27.30	$24.96	$22.50	$23.06	$21.65	$19.11	$19.40	$17.65	$16.66
Percentage Change in Income Tax From Previous Year	4.0%	9.4%	10.9%	(2.4%)	6.5%	13.3%	(1.5%)	9.9%	5.9%	9.5%
Annual Per Capita Motor Fuel Tax Distribution to Municipalities	$16.40	$16.60	$16.87	$16.69	$15.98	$14.45	$12.61	$12.85	$12.72	$12.05
Percentage Change in MFT From Previous Year	(1.2%)	(1.6%)	1.1%	4.4%	10.6%	14.6%	(1.9%)	1.0%	5.6%	(4.0%)

April 1988 / Illinois Municipal Review / Page 5

TABLE 2 — TOTAL MUNICIPAL SALES TAX DISTRIBUTIONS
(Thousands of Dollars)

*Source — Illinois Department of Revenue

	1988	1987	1986	1985	1984	1983	1982	1981
January	62,293	54,265	52,412	48,878	46,052	46,483	43,437	42,351
February	58,082	57,982	61,403	52,404	48,198	46,121	45,080	42,183
March	72,168	66,065	60,912	61,560	59,285	54,247	51,625	51,219
April		54,204	49,264	42,837	42,030	38,318	36,667	38,260
May		49,621	48,522	43,152	43,524	37,707	38,872	38,126
June		53,446	50,146	53,386	46,087	40,465	40,323	42,178
July		57,086	53,935	52,628	48,000	48,184	42,736	41,565
August		61,794	60,459	54,772	51,446	47,042	45,628	43,477
September		59,970	55,637	50,912	56,291	48,184	43,953	44,098
October		58,194	55,546	55,417	50,260	47,558	42,616	42,994
November		58,707	59,730	46,854	49,241	46,156	43,187	41,976
December		58,474	57,350	50,729	51,476	47,832	43,014	42,425
TOTAL		689,808	665,316	613,529	591,890	548,297	517,138	510,852
% Increase Over Previous Year		3.7	8.4	3.7	8.0	6.0	1.2	4.9

TABLE 3—ILLINOIS INCOME TAX PER CAPITA DISTRIBUTION
TO ILLINOIS MUNICIPALITIES AND COUNTIES

*Source — Illinois Department of Revenue

	1988	1987	1986	1985	1984	1983	1982	1981
January	2.54	2.31	1.93	1.85	2.08	1.69	1.82	1.71
February	2.87	3.00	2.13	1.98	2.12	1.75	1.62	1.49
March	1.86	1.51	2.13	1.64	1.63	1.22	1.39	1.27
April		2.67	2.25	2.20	2.11	1.94	1.74	1.54
May		3.37	2.42	2.52	2.68	1.71	2.10	1.83
June		1.30	2.28	2.20	2.56	1.77	1.81	2.05
July		4.11	2.26	1.33	2.20	1.89	1.94	2.02
August		.98	1.36	1.65	1.47	1.11	1.17	1.25
September		1.62	1.50	1.24	1.46	1.62	1.16	1.32
October		2.58	2.42	1.91	2.01	2.33	1.91	1.58
November		1.90	1.78	1.87	1.54	1.75	1.19	1.50
December		1.70	1.45	1.34	1.47	1.53	1.23	1.28
TOTAL		27.05	23.91	21.73	23.33	20.31	19.08	18.84
% Increase Over Previous Year		13.1	10.0	(6.9)	14.9	6.4	1.3	9.0

Page 6 / Illinois Municipal Review / April 1988

TABLE 4—ILLINOIS MOTOR FUEL TAX PER CAPITA DISTRIBUTION
TO ILLINOIS MUNICIPALITIES
(Collections for Previous Month)

*Source — Illinois Department of Transportation

	1988	1987	1986	1985	1984	1983	1982	1981
January	1.531	1.543	1.419	1.226	1.265	1.066	1.259	1.170
February	1.378	1.409	1.369	1.109	1.414	.893	.791	.844
March	1.310	1.185	1.261	1.137	1.118	.994	1.093	1.047
April		1.326	1.249	1.564	1.224	1.185	1.157	.966
May		1.458	1.405	1.350	1.282	.995	1.003	1.172
June		1.322	1.566	1.276	1.102	.848	1.070	1.079
July		1.427	1.344	1.584	1.532	1.282	1.099	.901
August		1.570	1.569	1.583	1.529	1.243	1.104	1.327
September		1.391	1.351	1.373	1.336	1.092	.978	1.019
October		1.369	1.401	1.265	1.168	1.139	1.140	1.111
November		1.234	1.577	1.642	1.611	1.019	1.083	1.161
December		1.423	1.191	1.317	1.382	1.811	.999	.778
TOTAL		16.657	16.702	16.426	15.963	13.567	12.776	12.575
% Increase Over Previous Year		(0.3)	1.7	2.9	17.7	6.2	1.6	(1.8)

but that growth starts at a base lower than $27.30. The State's cash flow problems over the last year or two have led to an extremely large amount of income tax refunds owed but not yet paid. When refunds are not paid, local governments get a share (one-twelfth) of an artificially high number. We project FY 88 revenue for municipalities ($27.30) is artificially inflated by about 75 cents. The Illinois Bureau of the Budget and the Illinois Economic and Fiscal Commission are forecasting income tax growth for their later starting fiscal year at 4.9 and 6.2 percent.

MOTOR FUEL TAX
FY 88 municipal revenue from the motor fuel tax should be about $16.60 per person which is 1.6% lower than the previous year. Sales of gallons of taxable motor fuel are predicted to be flat as a slight increase in total miles driven is offset by a slight decline in average fuel economy. Small growth in revenue from motor fuel sales and the transfer of a portion of the State sales tax will continue to be more than offset by higher costs of State administration and the vehicle emission testing program. We forecast $16.40 per capita in FY 89 or a 1.2% decrease.

CORPORATE PERSONAL PROPERTY REPLACEMENT TAX
Unchanged or negative growth in corporate personal property replacement revenue for many years has changed in the last couple of years. One year's growth was the result of a court case settled in favor of local government releasing a large amount from a protest fund. This past year there has been only slight growth even though corporate incomes are dramatically higher. Replacement revenue actually comes from two different sources. We predict that the tax on invested capital of utility companies will grow from about $230 million to about $245 million in FY 89 while the replacement corporate income tax, after refunds for investment tax credits, will grow from about $445 million to about $465 million in FY 89. This would represent roughly 5% more than FY 88.

One unknown variable is the use of investment tax credits in FY 89. Corporate profits will be higher but thus far the total amount of investment tax credits taken is lower than would have been expected. One reason for this is the general lack of investment in Illinois in the last few years. Another reason is the large number of corporations that lost money in past years and have large tax loss carry-forwards. Such companies may now begin taking full advantage of the Illinois investment tax credit of 1% of investment. This credit is taken solely against the Corporate Replacement Income Tax. Our earlier forecast of 5% growth assumes no dramatic change in the current utilization of the investment tax credit. •

April 1988 / Illinois Municipal Review / Page 7