On revenue-sharing reform, McHenry County taxpayers win for a change

Local governments must pare their budgets, forcing them to identify best practices they should have found already.

No area of state spending should grow dramatically without real scrutiny, but that’s exactly what has happened with the state’s distribution of income-tax money.

Gov. Bruce Rauner has proposed reducing the amount of state income-tax revenue distributed to local government agencies by $600 million.

“While the state tightens its belt, so too must local governments and transportation agencies,” Rauner said in his budget address.

In response, local officials hit the pavement, publicizing how much money they purportedly would lose and portraying the reduction as catastrophic. What was missing: context.

Income-tax revenue represents just one-fifth of the $6.1 billion the state gives to local governments every year. Rauner’s proposal would leave untouched most of that money.

Take McHenry County, for example.

At the end of fiscal year 2013, McHenry County’s municipalities and county government were sitting on $109 million in general-fund reserves, according to the state comptroller’s office. The proposed cut in income-tax revenue would amount to about $15 million, or just 14 percent, of the reserves. The effect on county government this year would only amount to 6 percent of reserves.

For the time being, general-fund reserves can cover the drop in income-tax money. In the long run, local governments must pare their budgets, forcing them to identify best practices they should have found already.

This means consolidation of government agencies and services must be on the table. The state has nearly 7,000 local taxing entities – far more than any other state, even those much larger. Illinois has entities unheard of in other states, including taxing districts for parks, fire protection, libraries and mosquito abatement, among many other government functions.

In the private sector, companies routinely merge operations as a way to save money and stay competitive. Otherwise, they go out of business. This standard should apply to government as well. If taxpayers can get a bigger bang for their buck, they should get it.

McHenry County, population 308,760, has 105 government entities, including 30 municipalities, 19 school districts and 17 townships.

By contrast, Georgia’s suburban Gwinnett County, which is two and a half times larger, has just 18 local government entities – a county government, one school district, 16 municipalities.

In much of Gwinnett County, municipalities handle fire protection, libraries and parks. In McHenry County, those functions are largely handled by individual government entities.

Separate entities mean duplication in overhead and less accountability. Most residents may know the mayor, but few can identify those heading the park, library and fire boards. Such anonymity translates into less scrutiny.

While local governments point to the cut in income-tax revenue, few note the good news for taxpayers.

On Jan. 1, the state income-tax rate fell to 3.75 percent from 5 percent. That means a family with McHenry County’s median household income of $76,145 will keep nearly $1,000 more in its pocket in 2015. That’s money the family can spend at local businesses, generating more sales-tax revenue for local government.

This boon for taxpayers certainly puts state budget cuts in perspective.