Illinois distributes state revenue to local governments through several separate channels, each with its own formula: the Local Government Distributive Fund shares income tax collections by population, Personal Property Replacement Taxes replace an abolished business tax, portions of sales, use, and motor fuel taxes flow back to the jurisdictions where activity occurs, and school districts and local health departments draw from their own dedicated programs. How much any city, county, township, or school district receives depends on which fund is involved and on legislative decisions that have shifted the percentages over the past decade.1Justia. Illinois Code 30 ILCS 115 – State Revenue Sharing Act
The Local Government Distributive Fund
The LGDF is the largest general-purpose channel. Each month, the Department of Revenue certifies to the Comptroller how much of the prior month’s net income tax collections belongs to local governments, and the Comptroller pays out those amounts to every municipality and county in the state.2Illinois Department of Revenue. Income Tax Distributions to Local Governments The formula is simple. A community’s share equals its population divided by the total state population, using the latest federal census figures certified by the Secretary of State.1Justia. Illinois Code 30 ILCS 115 – State Revenue Sharing Act
What has changed is the size of the pie. From 1993 through 2011, municipalities and counties split 10 percent of state income tax revenue. After the expiration of a temporary income tax increase and the budget negotiations that followed, the legislature reduced the local share to roughly 6 percent. For state fiscal year 2026, the LGDF share sits at approximately 6.47 percent, a nearly 40 percent cut from the historical rate. The specific percentage is set through the interaction between the State Revenue Sharing Act and Section 901 of the Illinois Income Tax Act.3Illinois General Assembly. Illinois Code 30 ILCS 115/1 The gap between the current and historical rates amounts to hundreds of millions of dollars annually that local budgets no longer receive.
Because the share depends on legislative appropriation and the percentage written into the Income Tax Act, local governments have little legal recourse when the state trims it. Restoring the full 10 percent requires legislative action, not litigation.
Personal Property Replacement Taxes
When Illinois abolished local personal property taxes on businesses under the 1970 Constitution, the state created replacement taxes to fill the hole. PPRT collections are distributed to the same types of taxing districts that previously levied personal property taxes: municipalities, counties, townships, and school districts.4Illinois Department of Revenue. Local Governments Guide to Tax Allocations – Calculation of PPRT
The geographic split is fixed: 51.65 percent of total collections go to Cook County taxing districts, and 48.35 percent to downstate taxing districts. Within each region, individual taxing bodies receive shares based on how much corporate personal property tax they collected in the late 1970s relative to the region’s total.4Illinois Department of Revenue. Local Governments Guide to Tax Allocations – Calculation of PPRT The distribution formula is essentially frozen in time. Communities that have grown since then receive proportionally less than their current size would suggest, and communities that have shrunk continue to draw shares tied to their historical tax base.
Sales Tax and Use Tax
Illinois returns a slice of state sales tax revenue to local governments. Twenty percent of the state’s 6.25 percent general merchandise sales tax rate, plus 100 percent of the state’s 1 percent rate on qualifying food, drugs, and medical appliances, flows back to local jurisdictions.5Illinois Department of Revenue. General Sales Tax Distribution and Jurisdiction Questions Local governments receive at least two warrants each month: one for their share of state sales tax on merchandise sold within their boundaries, and a second population-based disbursement from the State and Local Sales Tax Reform Fund.
Use tax on items purchased outside Illinois but titled or registered at an Illinois address follows a different split. The municipality where the item is registered receives 16 percent of the tax collected, the county receives 4 percent, and the state keeps the remaining 80 percent. If the registration address falls in an unincorporated area, the county receives both the 16 percent and 4 percent portions.6Illinois Department of Revenue. Use Tax and Local Use Tax For communities near state borders or with large vehicle dealerships, these allocations can meaningfully affect local budgets.
Motor Fuel Tax
The Illinois Department of Transportation administers Motor Fuel Tax distributions to local public agencies for road maintenance and construction.7Illinois Department of Transportation. Motor Fuel Tax Distribution Since July 2019, when the state raised its motor fuel tax rate, local governments have received two separate monthly allotments: one from the original Motor Fuel Tax Fund and a second from the Transportation Renewal Fund, which captures revenue from the rate increase. Unlike LGDF money, MFT dollars are restricted to transportation-related purposes and cannot be spent on general operations.
School District Funding
School districts sit outside the LGDF and draw their state money mostly through the Evidence-Based Funding for Student Success Act, which became law in 2017 and replaced five earlier grant programs with a single distribution system.8Illinois State Board of Education. Evidence-Based Funding The model calculates an adequacy target for each district based on the cost of providing a quality education to its particular student population. Districts furthest from their adequacy targets receive new funding first.
For fiscal year 2026, the state appropriated $301.8 million in new tier funding to be distributed across all organizational units, on top of each district’s base funding minimum, which equals its prior-year gross state contribution.9Illinois State Board of Education. Evidence-Based Funding Distribution Calculation Education funding grows incrementally each year under this structure, with the poorest districts closing the gap fastest. School districts also receive a share of PPRT collections, so they benefit from both the evidence-based formula and the older replacement tax system.
Local Health Department Grants
Local health departments draw state funding through the Local Health Protection Grant program, administered by the Illinois Department of Public Health. Grant funds are split by formula: 50 percent according to each department’s jurisdiction population, and 50 percent according to the number of residents living below 200 percent of the federal poverty level.10Legal Information Institute. Illinois Code 77-615.210 – Purpose and Distribution of Grant Funds Each participating department also receives a baseline amount tied to its prior-year award adjusted for inflation before the formula-driven allocation kicks in.
Tax Increment Financing Is Not a State Transfer
Tax Increment Financing is often lumped in with revenue sharing, but it is not a state-to-local transfer. TIF districts capture increases in local property tax revenue within a designated area and redirect those funds toward redevelopment projects. Under the TIF Act, a municipality must show that the proposed district qualifies as blighted or shows conditions such as dilapidation, obsolescence, or deterioration.
When a TIF district captures incremental property tax growth, that money is diverted away from school districts, park districts, and other overlapping taxing bodies for the life of the TIF, which can last 23 years. That diversion has generated repeated legal challenges. In Board of Education of Richland School District No. 88A v. City of Crest Hill, a school board challenged a city’s TIF designation on statutory grounds including contiguity of the parcels in the redevelopment area.11Justia. Board of Education of Richland School District No. 88A v. City of Crest Hill
Audit and Oversight Obligations
Local governments that receive state funds face audit requirements under the Governmental Account Audit Act. Any local governmental unit with annual revenue of $850,000 or more must undergo an independent audit by a licensed public accountant each year, covering all accounts and funds. The audit report must be filed with the Comptroller within six months of the fiscal year’s close. Smaller units with revenue below that threshold can file a simplified financial report instead.12Justia. Illinois Code 50 ILCS 310 – Governmental Account Audit Act Local governments that also spend $1 million or more in federal funds during a fiscal year must complete a federal single audit under the revised Uniform Guidance rules that took effect in October 2024.
On the state’s side, the Illinois Comptroller’s office documents every transaction involving state General Funds and publishes monthly summaries.13Illinois Office of Comptroller. Monthly Summary of General Funds Revenues and Expenditures Under the Grant Accountability and Transparency Act, the Comptroller can issue stop-payment orders against grant recipients that fail to meet their obligations.14Illinois General Assembly. Illinois Code 30 ILCS 708 – Grant Accountability and Transparency Act
Federal Deadlines Affecting Local Budgets in 2026
Illinois local governments still spending American Rescue Plan Act money face hard 2026 deadlines. All State and Local Fiscal Recovery Funds must be spent by December 31, 2026, with surface transportation and certain housing-related project funds facing an earlier September 30, 2026, deadline. Every recipient must also submit a Project and Expenditure report by April 30, 2026. Missing required reports can trigger recapture of the funds by the U.S. Treasury.
The Infrastructure Investment and Jobs Act continues to fund competitive grant programs through September 30, 2026, with many programs open directly to local governments and metropolitan planning organizations.15Federal Highway Administration. Infrastructure Investment and Jobs Act For communities working to offset a smaller LGDF share, these programs are a meaningful supplement, though they carry their own application and compliance obligations.