Bill
HB 5040
HB5040 shields restricted local government funds from garnishment or offset, requiring a public list of restricted funds and exceptions only for federally required collections.
HB5040 (104th General Assembly, Illinois) – LOCAL GOV-RESTRICTED FUNDS
Purpose and policy
- Purpose: Protect restricted local government funds from garnishment, attachment, or offset, ensuring they are used for their designated public purposes.
- Rationale: Many local government funds are restricted by federal/State law, county ordinances, or grant agreements (e.g., motor fuel taxes, statutorily earmarked revenues, Tax Increment Financing (TIF) revenues, grant awards). Garnishment or offset of these funds for unrelated debts can undermine essential services and jeopardize future funding eligibility.
- Policy statement: It is Illinois policy to shield restricted local government funds from garnishment or offset, except where expressly required by federal law.
Key provisions
1) State Comptroller protections for restricted funds (new Section 21.5 of the State Comptroller Act)
- Prohibition on withholding, offsetting, or applying against any debt any funds payable to a unit of local government if those funds are restricted.
- Definition of “restricted funds”: Funds restricted for a specific purpose by federal or State law, county ordinance, or grant agreement. Examples include:
- Motor Fuel Tax funds disbursed under the Illinois Highway Code.
- Tax revenues distributed to local governments that are statutorily earmarked for a specific purpose (state, county, or federal).
- Tax Increment Financing (TIF) revenues distributed under the Tax Increment Allocation Redevelopment Act.
- Grants or awards from federal, state, or private foundations that are contractually or statutorily restricted for a specific purpose.
- State grants and distributions allocated to a specific fund or purpose by law.
- Other funds designated as restricted under federal or State law or held in trust for a specified public purpose.
- Compliance and administration: The Comptroller must annually publish and maintain a list of restricted fund categories.
2) Exemption from garnishment under the Code of Civil Procedure (new Section 12-701.5)
- Exemption: All funds, revenues, or accounts of a unit of local government that are restricted for a specific public purpose by federal law, State law, county ordinance, or grant agreement are exempt from garnishment, attachment, or other legal processes to satisfy judgments or debts.
- Court procedure: A court must not issue a garnishment order against restricted funds as defined above or as identified in Section 21.5.
- Limitation: This exemption does not apply to collection actions by the federal government under federal law.
3) Effective date
- The Act takes effect upon becoming law.
Affected parties and impact
- Local governments: Their restricted funds (e.g., motor fuel tax allocations, earmarked tax revenues, TIF revenues, restricted grants) would be shielded from garnishment or offset for debts, preserving cash flow for essential services and compliance with grant/contractual terms.
- State Comptroller: Responsible for maintaining an annual list of restricted funds categories and ensuring proper application of the new protections.
- Courts and debt collectors: Must refrain from garnishing restricted funds; federal collection actions retain any applicable rights.
Procedural/timeline highlights
- Status: Passed Illinois House and moved through Senate in April 2026, with sponsor slate including multiple co-sponsors.
- Effective date is immediate upon enactment (no delayed effective date specified).
In sum, HB5040 seeks to safeguard restricted local government funds from collection actions unless federal law requires otherwise, and to formalize a publicly accessible list of restricted fund categories maintained by the Comptroller, ensuring funds are used for their designated public purposes.
Compiled from official sources — confirm details with the bill’s official record.
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