Last week when lawmakers finally passed a state budget, their counterparts in local government cheered.
A day or two later, mayors and city managers across the state got the bad news—that the hard-fought budget package included a sales tax surprise that will further strain municipalities.
A new sales tax collection fee being imposed by the state will cost the city of Bloomington around $500,000 each year, and the Town of Normal around $320,000. That lost revenue comes at a challenging time for municipalities, which already face rising pension obligations and flattening sales tax revenue.
“From the state’s perspective, I guess you could call it a money grab,” said Normal City Manager Mark Peterson. “They need the money and this was a way to collect money.”
The 2 percent sales tax collection and remittance fee was a late addition to the comprehensive budget package that finally passed July 6. So late, in fact, that the Illinois Municipal League (IML) didn’t have an opportunity to lobby against it. The fee caught Bloomington-Normal officials off-guard too.
“We’re very much opposed to it,” said Brad Cole, executive director of the Illinois Municipal League, which represents cities and towns in Springfield. “It’s the state grabbing local municipalities’ money.”
Sales tax revenue—from a state tax and a home-rule, or local, sales tax—are the largest sources of revenue for Bloomington and Normal. Bloomington and Normal last raised the local sales tax in 2016.
Normal collects more than $20 million from those taxes. That money pays for police and fire services and important things, like street maintenance and snow removal.
“It’s a significant amount of money to lose. We’ll have to figure out a way to account for that loss of revenue through spending cuts,” said Peterson.
Sales tax dollars pay for similarly important services in Bloomington, as well as the city’s contributions toward the McLean County jail expansion project. Sales taxes were already a somewhat unpredictable revenue source given it relies on consumer spending, said Bloomington Finance Director Patti-Lynn Silva.
Online shopping is also keeping sales taxes somewhat flat, she said.
“If Internet sales continue to grow, communities will earn less and less,” Silva said.
So why is the state doing this? Cole from the IML said it was requested by the Gov. Bruce Rauner’s Office of Management and Budget. The governor’s office did not immediately return a request for comment.
And while lawmakers took their time passing a budget, this new fee is not so patient: It’s retroactive to July 1, meaning cities and towns have to deal with this now.
Peterson tried to put the lost revenue in context of the cuts facing Illinois State University and local social service agencies as a result of the state’s budget problems.
“I hope (the fee) helps, let’s put it that way,” Peterson said.
Editor's note: This story has been updated to reflect new guidance from the Illinois Municipal League issued Thursday that clarified the new fee would impact only home rule (local) sales tax dollars. Initial analysis—that the fee would be applied to all sales tax revenue—was incorrect.
A look at Normal sales tax revenue over the past 10 years:
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