Wave of local tax and fee increases sweeping Illinois

Cities and villages across the state are raising taxes or implementing new ones for a variety of functions, from attracting a fast-food restaurant to catching up on rising pension costs.

Towns across Illinois have been wrestling with raising local taxes and fees, or putting in new ones, for a variety of different municipal functions. From funding for capital projects to paying for growing city pension and fire costs, or attracting outside investment by implementing special taxes, debates over new sources of revenue have consumed town halls and city councils across the state.

But given the extent of local pension crises and other spending problems, Illinoisans must be wary that new taxes aren’t going to prop up a broken system.

Localities debate tax and fee hikes

In July, sales tax hikes took effect in 50 local taxing bodies in Illinois. Twelve counties, 20 municipalities and 20 business districts within 15 cities hiked their rates as much as 1.5 percentage points, according to the Illinois Department of Revenue.

And discussions of new taxes are popping up elsewhere.

Take Wheaton for example. The midsized suburban city is undergoing a sharp public debate over whether to raise the local sales tax in order to fund city improvements outside Wheaton’s Tax Increment Finance, or TIF, districts. One proposal calls for raising the local sales tax by 0.25 percent. However, the Wheaton City Council is split with some council members throwing their weight behind the tax and others wanting feedback from businesses before a decision is reached, according to the Daily Herald.

Other municipalities have resorted to different methods of taxation to fill budget holes or spur growth.

One method is dining taxes. The Village of Lincolnshire passed a 1 percent tax on food and beverages served at restaurants in September. However, the tax was not on all food sold in the village, as most food and beverages sold at grocery stores were not subject to the tax unless the food was in the form of a prepared meal.

Similarly, Oswego also decided to hit up restaurant patrons. Village officials passed a 1 percent tax on prepared food and beverages in Oswego restaurants in September, which expected to bring in $500,000 a year. Oswego village trustees also decided to implement a $0.04 motor fuel tax that is expected to bring in $600,000 annually.

Oswego’s trustees voted unanimously in favor of both taxes.

Another prime case is Peoria. The Peoria City Council is divided over plans to implement a so-called “Portillo’s tax,” which would create a Special Service Area, or SSA, on the location of the newly built Portillo’s restaurant. Peoria has used SSAs in the past at other locations in town, according to the Peoria Journal Star. When a certain area is declared an SSA, a special tax is levied on the SSA’s sales or real estate, and the revenue from the tax goes toward developments of the SSA.

In September, the Naperville city council voted 5-4 to keep its 0.5 percent home rule sales tax, the Chicago Tribune reported at the time. The sales tax was originally slated to sunset in December 2017, however city council members, citing revenue, decided to keep the tax in place. Some Naperville council members were even considering doubling the city sales tax to 1 percent, up from the current 0.5 percent.

Fortunately for taxpayers, the city council voted against the increase for the time being. However, questions remain as Naperville faces serious budgetary issues. The Naperville Financial Advisory Board recommended the city council double its home rule sales tax and discard a $2 million property tax abatement the city started in 2016, according to the Tribune. The board made its recommendations in order to fund growing city costs including an additional $2 million in Naperville contributions to its public safety pension program and another $2 million to the city’s Roadway Maintenance Improvement.

As if these weren’t enough for Naperville, city politicians have to find a way to plug up costs from Springfield, including $750,000 in lost state funds and $175,000 a fee from the state for implementing a home rule sales tax.

And if it’s not taxes, it’s fees. The city of Bloomington decided in September to raise sewer fees in order to cover improvements in its sewer system, raising monthly sewer bills to $19.91 up from $13.85. Bloomington’s city council voted 5-4 for the $6.06 increase and a 3 percent annual increase going forward, the Pantagraph reported at the time.

And that’s not all.

Bartlett has been mulling implementing a sales tax in order to cover up its budget deficit. New Lenox village officials voted to increase its local sales tax rate 0.5 percentage points in order to pay for capital projects in August, giving New Lenox the highest sales tax in Will County. And after becoming a home-rule community, Woodstock put in place a 1 percent sales tax in order to fund property tax relief for homeowners and to fund city infrastructure.

Local pension crises force difficult choices

Towns across the state are in a bind. Local pension costs are driving up local taxes all over Illinois. While some are better funded than others, they all face similar problems. In many cases, local politicians have proven they are unable to manage workers’ retirements. More than 30 percent of all local fire and police pension funds have less than half of the money they need on hand to pay out future benefits. And these costs are rapidly growing.

Take Oswego for example. Oswego’s contributions to its police pensions tripled from 2005 to 2014 when adjusted for inflation. And since 2008 when Oswego made its fire department fulltime with pension benefits, pension costs have gone up 59 percent.

As time goes on and municipal fire and police pension liabilities grow, local lawmakers will feel forced to enact new taxes and fees or raise current taxes and fees even more, further straining taxpayers’ wallets.

Tapped out

New taxes and increases on existing taxes and fees on already-cash strapped residents is no way to fund local governments or spur growth. Whether it’s an unfair tax deal for one restaurant or new taxes in order to play catch up on police and fire pension funds quickly slipping into insolvency, tax hikes won’t solve budgetary or growth problems.

On the pension front, Illinois lawmakers can begin an end to the problem by allowing local municipalities to create 401(k)-style plans for new workers going forward. Those new plans can be modeled on the 401(k)-style plan used by over 20,000 members of the State Universities Retirement System.

Additional reforms – from allowing municipal bankruptcy, to unions agreeing to pension changes through collective bargaining, to amending the pension protection clause in the Illinois Constitution – are needed as well.

The last thing residents need, regardless of where they live, is more costs. These fee and tax increases aren’t happening in a vacuum. Lawmakers in Springfield passed the largest permanent income tax hike in Illinois history just this July. And residents already shoulder one of the highest total tax burdens in the nation.

Local politicians should be more mindful of this as they make important decisions that could impact their constituents’ lives for years to come.