Is a tax on services in Illinois' future? Gov. Pritzker no longer rules it out.

Gov. J.B. Pritzker unexpectedly moved away last week from his longstanding opposition to taxing services, saying he didn’t want to start taking ideas off the table as lawmakers search for ways to fund and reform the Chicago region’s mass transit system.

As you may know, the Chicago area's mass transit agencies are facing a $730 million “fiscal cliff” in 2026. The federal government’s COVID-era subsidies will expire that year. While ridership has declined as service worsens, operating costs have increased and average fare prices have fallen.

According to a report last year from the Chicago Metropolitan Agency for Planning, imposing a service tax could be part of the solution. The CMAP report said adding a service tax to the state's existing 6.25% state tax rate could generate $1.1 to $1.9 billion in 2026. Some legislators are proposing a $1.5 billion annual funding increase for transit, as part of a consolidation effort.

So, my associate Isabel Miller (who contributed to this column) asked Pritzker during an unrelated media event if he wanted to take any state taxes off the table before the talks heat up, including the service tax.

“I have never been in favor of that before,” Pritzker said of the service tax. He has indeed opposed the tax all the way back to his first 2018 gubernatorial campaign, often calling it regressive.

“There may need to be a source of revenue here,” Pritzker said, “but that's not something that I have favored in the past.”

As far as specifically ruling out a service tax, however, the governor said: “I really don't want to start saying, ‘We're not going to do this, we're not going to do that.’ At this point, there are just so many pieces of this that we have to look at before we're going to pay for what's necessary here as we come off of support from the federal government and making sure we're restoring transit services.”

Some legislative Democrats pushing transit agency consolidation and reform welcomed the news of the governor’s new openness to a service tax, which seems to be evidence the governor is serious about finding a fix.

"I appreciate the governor being open to it, and I appreciate him recognizing this is a complicated matter," Rep. Eva-Dina Delgado, D-Chicago, told me. Delgado introduced House Bill 5828 last week to provide the systems an annual $1.5 billion state appropriation once the mass transit system is consolidated.

Rep. Kam Buckner, D-Chicago, whose House Bill 5823 would create a consolidated transit agency, told me he's also opposed a service tax in the past. But Buckner said he is open to it now, and he appreciates the governor is keeping an open mind.

Change must come for mass transit

Pritzker also reiterated last week he's not yet endorsing any particular mass transit reform proposal but insisted "change is going to have to come."

"We just know that we're going to have to upgrade service, make sure that we're dealing with the transit funding challenge that's coming up," Pritzker said. “I hope to see several proposals so that we can consider what direction to take."

That change in direction will be a complex endeavor, the governor said.

"We've got to look at cuts that need to be made, along with, you know, are there changes in fares for certain types of riders that need to be made," Pritzker said.

A Pritzker spokesperson later explained when the governor said “cuts,” he meant efficiencies to save money, like consolidating the regional transit system but not service cuts.

Most transit agencies hotly oppose consolidation, including the Chicago Transit Authority.

A spokesperson for the Illinois Chamber told me the organization hopes the governor remains ambivalent about a service tax.

"From our position, taxing Illinois' service businesses — especially our smallest businesses — to close a budget gap is a non-starter. The tax would negatively impact the smallest of businesses: service-based small businesses and startups — especially businesses in counties that border other states as customers can save just by crossing the state line," the Chamber spokesperson said.

One issue with a service tax is implementing it would take time. Many of the businesses that would be covered are not currently set up to pay sales taxes, for example. The Chamber predicted it could take “several years” to implement a service tax, so it won’t solve “short-term gaps.”

“As the voice of Illinois business, we would welcome sitting down with the governor’s team to discuss pragmatic ways to address the budget gap, but taxing services is not one of them,” the Chamber spokesperson said.

Rich Miller also publishes Capitol Fax, a daily political newsletter, and CapitolFax.com.

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