The Illinois Municipal League has issued a warning about the potential consequences of Gov. J.B. Pritzker’s proposal to eliminate the 1% grocery tax. According to the league, this move could result in local taxpayer-funded cities losing hundreds of millions of dollars annually.
The governor’s proposed budget for the upcoming fiscal year, which starts on July 1, has been released. However, the Local Government Distributive Fund remains unchanged in the budget, according to Illinois Municipal League Executive Director Brad Cole. Cole argues that this decision prevents cities from receiving their full share of state income taxes.
IML officials are advocating for the restoration of the full 10% rate, as opposed to the current levels of 6.47% for individual income tax collections and 6.845% for corporate income tax collections.
“The rate is the crucial factor here, so if additional revenues are generated, the rate would be applicable to them. However, the overall rate remains relatively steady,” explained Cole.
The governor’s proposal to eliminate the 1% grocery tax will place a significant burden on local governments.
Cole, in an interview with The Center Square, emphasized the long-term consequences of reducing the grocery tax. He highlighted that local governments heavily rely on the revenue generated from this tax, which amounts to hundreds of millions of dollars annually. It is important to note that this tax is exclusively allocated to municipalities, with no involvement of state funds. Therefore, by proposing a reduction in the grocery tax, the governor inadvertently jeopardizes the funding for local communities. This potential loss of three- or four-hundred million dollars would compel cities to find alternative means to make up for the shortfall.
Cole explains that if cities do not receive these funds or miss out on their allocated share of the LGDF, local taxpayers might be burdened with higher local taxes in order to sustain essential city services.
The governor’s proposal includes a potential cap on the vendor discount for retailers who collect sales tax on behalf of state and local governments. This measure is being opposed by retailers and the Illinois Chamber of Commerce, who argue that it would effectively amount to a hidden tax increase on businesses of all sizes.
According to budget documents released by the governor’s office, implementing a cap on the sales tax retailers’ discount is expected to generate $101 million for the state and $85 million for local governments. However, Representative Cole argues that this amount will not be enough to compensate for the projected revenue losses resulting from the elimination of the grocery tax.
“Why do we have to give up something else in order to get that?” he asked, emphasizing the significant amount of money, at least $350 million, that would be spent on eliminating the grocery tax. He questioned the need to sacrifice other benefits if the vendor discount were to be changed.
According to Cole, it is important to note that the elimination of the grocery tax and the implementation of the vendor discount cap are not mutually exclusive. He suggests that while the grocery tax may be eliminated, retailers could still be protected from the vendor discount cap. However, this could have a negative impact on local taxpayer-funded governments, potentially leading to local tax increases in order to compensate for the loss.
According to Cole, the governor’s plan to transfer funds from transit districts could potentially worsen funding problems for municipalities.
Lawmakers will be taking a break next week and are set to resume their duties at the capitol on March 5. It is crucial that they pass next year’s budget by the end of May, requiring a simple majority for approval.