ESTIMATING STATE SHARED MUNICIPAL REVENUES
FOR FISCAL YEAR 1997

By Anne Masters, Staff Accountant, Illinois Municipal League

I. SUMMARY OF FISCAL YEARS 1996 AND 1997

The Illinois Municipal League estimates of income and sales tax growth due to growth in the Illinois economy and adjusting for formula changes, will continue at 5 percent for income tax and 5.5 percent for sales tax growth through the end of Municipal Fiscal Year 1996 (MFY 96) on April 30, 1996.

For next year, MFY 97, we believe income and sales tax growth will slow by 0.5 percent, to 4.5 percent for income tax and 5 percent for sales tax growth. In other words, we don't believe a recession will hit the Illinois economy before May 1997.

January 1995 Estimate of MFY 1996 Per Capita Receipts	November 1995 Estimate of MFY 1996 Per Capita Receipts	November 1995 Estimate of MFY 1997 Per Capita Receipts
Local Government Distribution Fund (LGDF):
$54.40	$55.00	$59.00
Motor Fuel Tax:
$21.30	$23.00	$23.00
State Use Tax:
$7.70	$7.10	$7.40
Photoprocessing Tax:
$1.75	$1.75	$1.80
Total Estimated Per Capita Revenue:
$85.15	$86.85	$91.20

II. INCOME TAX

Our January 1995 estimate of $54.40 per person will be about $.60 low because the Illinois income tax is growing with the Illinois economy at a rate higher than our 5% projection. Actual receipts in the first six months reflect a 7.3% increase in the economy plus the effect of the formula increase beginning with the August 1994 and August 1995 distributions. Our November 1995 estimate for MFY 96 is $55.00.

For MFY 1997 we estimate 4.5% growth in receipts due to growth in the State economy. In addition, May, June, and July 1996 receipts will also be an extra 10% higher due to those being the last three months where the distribution formula is higher than the prior year.

	MFY 1997 Estimate	MFY 1996 Estimate	1996 Adjusted % Growth	MFY 1995 Actual	1995 Adjusted % Growth	MFY 1994 Actual
MAY		$5.45	4.7%°	$4.77	2.6%	$4.65
JUNE		5.04	17.6°	3.93	8.6	3.62
JULY		5.28	4.5°	4.63	16.0	3.99
AUGUST		3.41°°°°	7.3°°°	2.89°°	5.5°	2.51
SEPTEMBER		3.71	3.5°°°	3.26	9.1°	2.74
OCTOBER		5.54	7.0°°°	4.71	7.9°	4.00
NOVEMBER			5.0°°°	3.08	10.7°	2.55
DECEMBER			5.0°°°	3.08	8.2°	2.61
JANUARY			5.0°°°	4.01	-2.8°	3.78
FEBRUARY			5.0°°°	5.13	6.6°	4.41
MARCH			5.0°°°	3.04	5.2°	2.65
APRIL			5.0°°°	4.69	10.8°	3.88
FY TOTAL	59.00	55.00		47.22		41.39
FY % CHG	7.3	16.5		14.1		4.0

Source: IL Department of Revenue

Entries in Bold are IML Estimates

  °Reduced to show growth in total tax, not the formula change from 1/12th to 1/11th which first appears on this chart at °°.
°°First month of receipts at 1/11th of income tax versus 1/12th.
°°°Reduced to show growth in total tax, not the formula change from 1/11th to 1/l0th which first appears at °°°°.
°°°°First month of receipts at 1/l0th of income tax versus 1/11th.

November 1995 / Illinois Municipal Review / Page 13

III. SALES, OR MUNICIPAL RETAILERS OCCUPATION TAX (MROT)

MFY 96 receipts of municipal sales tax have been strong, increasing at a 5.0% rate in the first six months of the fiscal year. We estimate the total for MFY 96 to be $1.02 billion for municipal sales taxes from the 1% Municipal Retailers Occupation, Servicemen's Occupation and Use Tax (titled or registered items only). This represents 5.6% growth from MFY 95.

For MFY 97 we estimate total revenue of $1.07 billion, or 4.9% more than MFY 96.

Please keep in mind that an estimate of total statewide municipal sales tax revenue is not particularly helpful in your forecast of local sales tax receipts. Your receipts will vary depending on the wide swings in retail sales as stores open and close, or the local economy expands or contracts.

MUNICIPAL SALES TAX
(thousands of dollars)

	FY 97 PROJ	FY 96 EST	FY 95	FY 94	FY 93	FY 92
MAY		72,965	70,293	66,086	61,675	57,582
JUNE		80,882	74,859	69,042	63,712	64,001
JULY		80,032	78,071	68,948	67,674	66,445
AUGUST		84,863	79,244	79,569	70,022	69,713
SEPTEMBER		89,327	85,522	76,239	75,306	70,922
OCTOBER		85,686	80,322	76,496	71,896	67,265
NOVEMBER			83,210	73,254	67,731	66,179
DECEMBER			79,166	70,183	70,398	66,771
JANUARY			80,130	77,997	71,641	60,607
FEBRUARY			82,496	78,476	71,676	66,417
MARCH			102,935	92,949	90,966	84,128
APRIL			69,730	66,870	60,718	60,836
FY TOTAL	1,070,000	1,020,000	965,978	896,109	843,415	800,866
FY % CHG	4.9	5.6	7.8	6.2	5.3	-2.3
Source: IL Department of Revenue

IV. MOTOR FUEL TAX (MFT)

Estimated MFY 96 motor fuel tax revenue is higher than last year's projected $21.30. We have raised our estimate to $23.00 for MFT receipts ending 4/30/96.

For MFY 97, IML staff estimates that MFT disbursements will stay at the same level as this year, or about $23.00 per capita.

Motor Fuel Tax revenue has become a static, or even a slowly declining source of per capita revenue for municipalities as average fuel economy continues to improve. In addition, the federal government's efforts under the Clean Air Act have negatively affected this revenue source in two ways. First, Vehicle Emissions Inspection costs are paid out of gross MFT receipts. Second, federal efforts to impose trip reduction requirements on the Clean Air Act nonattainment areas will also reduce receipts.

The only source of growth is the transfer each month of 1.7% of the State sales tax into the State's Motor Fuel Tax Fund as a proxy for the sales tax received from sales of motor fuel.

	FY 97 PROJ	FY 96 EST	FY 95	FY 94	FY 93	FY 92	FY 91
MAY		1.602	1.993	1.621	2.150•	1.564	1.766
JUNE		2.095	2.040	2.901••	1.538	1.444	1.694
JULY		2.423	2.033	1.868	1.862	2.089	1.747
AUGUST		1.948	1.674	1.676	1.712	1.808	1.722
SEPTEMBER		2.048	1.921	2.212	1.961	1.683	1.790
OCTOBER		1.854	1.869	1.659	1.558	1.978	1.920
NOVEMBER			1.708	1.629	1.803	1.521	1.699
DECEMBER			1.907	1.658	1.881	1.684	1.567
JANUARY			1.411	2.229	1.557	1.662	1.929
FEBRUARY			2.391	1.377	1.656	1.665	1.785
MARCH			1.605	1.754	1.358	1.666	1.476
APRIL			2.023	1.648	1.774	1.642	1.566
FY TOTAL	23.00	23.00	22.58	22.23	20.81	20.41	20.66
FY % CHG	0.0	1.9	1.6	6.8	2.0	-1.2	13.0

•INCLUDES 5 MONTHS OF SALES TAX TRANSFERS (9/91-1/92)
••INCLUDES 8 MONTHS OF SALES TAX TRANSFERS (9/92-4/93)

Source: Illinois Department of Transportation

Page 14 / Illinois Municipal Review /November 1995

V. LOCAL USE TAX

The use tax has become a rapidly rising revenue source as the Illinois Department of Revenue aggressively attempts to collect use tax on out of state catalog and electronic shopping. The increased state auditing and the voluntary use tax disclosure program appear to have been very successful. MFY 95 produced $6.94 per capita, an increase of 25.5% over MFY 94. MFY 96 receipts to date are running slightly lower than the previous year. IML staff has reduced its estimate for MFY 96 from $7.70 to $7.10 per capita, a 2.3% increase over MFY 95.

MFY 97 revenues should grow with the sales tax. We project MFY 97 use tax receipts will be $7.40, a 4.2% increase.

LOCAL SHARE OF THE STATE USE TAX
(in dollars per capita)

	FY 97 PROJ	FY 96 EST	FY 95	FY 94	FY 93	FY 92
MAY		0.45	0.49	0.34	0.31	0.38
JUNE		0.91	1.04	0.47	0.41	0.46
JULY		0.48	0.44	0.35	0.31	0.38
AUGUST		0.49	0.50	0.33	0.34	0.32
SEPTEMBER		0.57	0.50	0.72	0.45	0.40
OCTOBER		0.49	0.47	0.46	0.33	0.35
NOVEMBER			0.54	0.36	0.34	0.31
DECEMBER			0.66	0.57	0.46	0.47
JANUARY			0.49	0.44	0.62	0.29
FEBRUARY			0.53	0.50	0.62	0.35
MARCH			0.83	0.74	0.72	0.58
APRIL			0.45	0.25	0.34	0.40
FY TOTALS	7.40	7.10	6.94	5.53	5.25	4.69
FY % CHG	4.2	2.3	25.5	5.3	1.2	1.7

Source: Illinois Department of Revenue
Notes
Months underscored from 2/91 through 6/91 were not sent until 7/91
Month underscored for 6/92 was paid partly in 7/92
Month underscored for 3/94 was paid partly in 6/94
Months underscored for 4/94 and 5/94 were not sent until 6/94

Municipal records will not match this chart because appropriation for that year of those delays in making payments when revenues owed exceeded the maximum State appropriation for that year

VI. PHOTOPROCESSING SALES TAX

Photoprocessing sales tax receipts run parallel to the estimates for statewide sales tax, as they are a percentage of total State sales tax receipts, distributed on a per capita basis to municipalities.

MFY 95 photoprocessing sales tax disbursements were $1.69 per person, an increase of 6.3% over MFY 94. For MFY 96, we estimate $1.75 per person, an increase of 3.6%. For MFY 97, we estimate $1.80 per person, an increase of 2.9%.

LOCAL SHARE OF "PHOTOPROCESSING" TAX
(equal to .4% of state sales tax collections) :

	FY 97 PROJ	FY 96 EST	FY 95	FY 94	FY 93	FY 92
MAY		0.132	0.126	0.123	0.117	0.154
JUNE		0.149	0.143	0.122	0.116	0.162
JULY		0.151	0.141	0.139	0.103	0.144
AUGUST		0.148	0.143	0.133	0.133	0.139
SEPTEMBER		0.149	0.146	0.132	0.129	0.138
OCTOBER		0.144	0.141	0.130	0.126	0.116
NOVEMBER			0.141	0.135	0.125	0.122
DECEMBER			0.137	0.132	0.121	0.116
JANUARY			0.158	0.156	0.143	0.133
FEBRUARY			0.165	0.148	0.136	0.135
MARCH			0.118	0.106	0.104	0.100
APRIL			0.133	0.132	0.123	0.116
FY TOTALS	1.80	1.75	1.69	1.59	1.48	1.58
FY % CHG	2.9	3.6	6.3	7.4	-6.3

Note: Underscored month indicates first month Chicago was included in distribution
Source: Illinois Department of Revenue

November 1995 / Illinois Municipal Review / Page 15

VII. CORPORATE PERSONAL PROPERTY REPLACEMENT TAX (CPPRT)

Since 1979, the Corporate Personal Property Replacement Taxes have been the most volatile and difficult to predict of all state-shared municipal revenues. The reason for this volatility is that over half the receipts come from the additional 2.5% corporate income tax. Corporate incomes fluctuate wildly as corporations move through the business cycle. Total Illinois corporate profits, and the taxes paid on them, can drop as much as 30% in a recession and then grow a similar amount during a strong economic recovery.

An additional difficulty in estimation arises due to the availability of an investment tax credit for corporations which can only be taken against the corporate replacement income tax, not the regular State corporate income tax. Illinois corporations have successfully convinced the Illinois General Assembly to create this tax credit and to provide for generous carryback and carryforward provisions which make forecasting corporate income subject to replacement tax a perilous adventure.

A measure of stability is found in the other source of replacement revenue, the .8% tax on the invested capital of utility companies. This revenue source has grown steadily, but has lagged as utility companies have restrained constructing new or refurbishing old distribution and generation systems.

The significant growth in corporate profits we forecasted in our August 1994 estimate had not appeared by January 1995 so we lowered our MFY 1995 estimate at that time from $750 million to $700 million. As you can see by the table, those higher profits did arrive beginning in March of 1995 and continue through the latest distribution in October. Those last six distributions (out of the statutorily established eight distributions per year) are up 17.6 percent over the previous year.

We have raised our MFY 96 estimate from $730 million to $830 million, an 11.9 percent increase over MFY 95. We believe that receipts will continue to rise in MFY 97, but at a lower 3.6 percent rate or an increase from $830 million to $860 million.

CORPORATE PERSONAL PROPERTY TAX REPLACEMENT REVENUE DISBURSEMENTS
(in thousands of dollars)

	FY 97 PROJ	FY 96 EST	FY 95	FY 94	FY 93	FY 92
MAY		90,430	76,704	77,828	44,831	71,828
JULY		149,193	137,697	137,718	135,843	116,407
AUGUST		26,229	17,535	36,384	15,998	11,434
OCTOBER		153,707	135,136	123,187	91,514	112,268
DECEMBER			33,627	30,549	49,601	22,520
JANUARY			127,219	124,818	108,270	39,783
MARCH			38,991	24,791	23,251	74,607
APRIL			174,632	146,455	121,166	130,143
FY TOTAL	860,000	830,000	741,541	701,730	590,474	578,990
FY % CHG	3.6	11.9	5.7	18.8	2.0	-0.8

Source: Illinois Department of Revenue

Page 16 / Illinois Municipal Review / November 1995