The possible elimination of Illinois’ grocery tax could leave municipalities across the state facing an unexpected revenue shortfall.
Gov. JB Pritzker called for the permanent cut as part of the $52.7 billion budget proposal he announced last month. If the grocery tax cut passes, cities like Peoria and Pekin will need to explore options to make up the difference.
Peoria Mayor Rita Ali says the governor’s proposal to end the state’s 1% grocery tax caught city leaders around Illinois by surprise, and now they're scrambling for a solution.
“This is what I believe to be unintended consequences of something that was meant to give taxpayers a break by removing the 1% grocery tax,” said Ali. “However, it will have such an impact on Peoria – at $4 million annually – that it would mean a cut in services to our community. I do believe that if that happens, we would likely have to bring it in, reinstate it as a local tax.”
Pritzker says the proposal aims to restore local control, as home-rule municipalities would have the option to implement their own local grocery tax. He also says it's about cutting a tax that disproportionately impacts people struggling in poverty.
“We're one of only 13 states left in the country that has a grocery tax; all the other states have gotten rid of it. You ought to go look at the map and see which states are remaining,” said Pritzker. “I mean, we're behind West Virginia at getting rid of grocery tax, just to give you an example.
“We should be leading in this country, we should – I mean, Illinois is a state where we care deeply about working families, about those who are in low-income families. Frankly, those who don't have a job and may just have a little bit of money and go to the grocery store. Yeah, it's only $1 for every $100 that you spend, but that means a lot to people at the lowest end of the spectrum in terms of income.”
Pritzker originally suspended the grocery tax temporarily as part of his 2022 budget, but Peoria City Manager Patrick Urich says municipalities received state funding to cover the lost revenue.
“What the state has done is they've held cities harmless, and so they have provided an additional $4 million to us every year to offset the freezing of that grocery tax,” said Urich. “What the ‘go-forward’ has been from the Governor's proposal is that they're no longer going to hold municipalities harmless.”
Bob Grogan, Pekin’s interim finance director, adds that Illinois was able to reimburse cities previously because it was filtering federal COVID-19 assistance down the line.
“They repurposed a bunch of the money that they got in from the feds and reimbursed for the lost revenue that went to the local governments. So we were made whole,” said Grogan. “It doesn't matter to the government as much whether it's coming ultimately from a federal grant or from buying your eggs and milk – obviously, it's great when other people send you money. So that's the real difference here, is that there's been no suggestion of replacing it from other parts of the of the state budget.”
Urich said Peoria will need to consider passing a local grocery tax because the money received through the state tax is vital.
“That $4 million goes towards paying salaries of police officers, of firefighters, of code enforcement officers, of public works employees. So as we look at that, I think it has a significant impact on our operating budget,” he said. “I think that that's a concern that that we need to voice to our legislators, that this has an impact. It sounds great to be able to look at eliminating a tax that doesn't affect the state's budget, but it certainly affects locals.”
Pekin City Manager John Dossey says they're facing a shortfall of around $1.5 million, or about 5% of their annual budget, and they'd likely cut some services to close the gap.
“It would be something we probably consider cuts on, as far as services go,” said Dossey. “I know we're not alone with the other municipalities. I know the Illinois Municipal League (IML) is looking into this as well, and having conversations with our legislators and what the deep impact is going to be overall with the local communities.”
The IML opposes Pritzker’s proposal, estimating removal of the state grocery tax would cost municipalities a total of $325 million annually.
Grogan says any service cuts in Pekin would have a noticeable impact in the community.
“Our biggest expense items are our police and fire and roads out of the general fund, and this is general fund money,” said Grogan. “I will say, the other alternative as opposed to doing cuts is trying to find other places, things to replace the revenue. But nobody likes to go and increase taxes or fees, so that's never taken lightly.”
Pritzker says when he initially suspended the grocery tax temporarily, he took flak from Republicans who said it wasn't enough.
“They yelled at me; they held press conferences telling me that I had done something terrible by only eliminating it for a year,” said Pritzker. “I thought about it for a long time and thought, ‘yeah, this is the most regressive tax – the tax on food. So we should eliminate it.’ Frankly, I took their advice.”
Urich suggests Pritzker’s proposal serves as a political maneuver that gives the appearance of a state tax break while leaving cities to absorb any fallout.
“That's exactly what it does, and I think that if we want to talk about state tax policy … we have probably one of the most administrative heavy property tax administration systems in the country,” said Urich. “We have a sales tax system that has a very narrow sales tax base, whereas many of the surrounding states around us tax more services than we do; we just tax goods here in Illinois.
“So if the state wants to talk about regressiveness, they could certainly look at sales taxes and broadening the base and lowering the rate if they wanted to do something that would be more progressive. But we don't talk about that.”
Since it’s not a home-rule community, East Peoria would not have the option of adding its own grocery tax to compensate for any lost revenue. In a message to WCBU, Mayor John Kahl says he “was quick to express displeasure” with local state legislators over Pritzker’s proposal.
City officials in Washington project an annual loss of $500,000 if the state grocery tax is dropped. The IML’s estimates anticipate a loss of up to $80 million for Chicago, $3.8 million for Springfield, $2.6 million for Normal, and $2 million for Bloomington.
Urich says he's pretty confident that Governor's proposal to eliminate the grocery tax will get passed.
“It's certainly an opportunity for the General Assembly to stand up and say that they cut taxes without it having an impact, and I think that that's probably what we'll see. We will certainly voice their displeasure with it though,” said Urich.
Once approved, the state's new budget will go into effect on July 1.
