Grocery tax will help keep city services in stock

What do Chicagoans expect from city government? Everyone wants a safe neighborhood to live in, clean, pothole-free streets and their trash collected. Similarly, folks typically expect well-trained, professional first responders to show up when they call 911 during an emergency. Still, others contend Chicago should do everything from making more affordable housing stock availablento ensuring all residents have access to mental health services and subsidizing jobs for low-income teens.

The catch is, city government can only satisfy this public demand if its corporate fund, which is its primary operating budget, has adequate tax revenue to do so. But at this point, it clearly doesn’t. The city projects the cost of continuing the same level of services it provided this year, coupled with paying down its pension and other debt service obligations, will be $6.1 billion next year. That’s roughly the same as this year, which is pretty remarkable, given inflation drives up the cost of providing services annually, and the scheduled repayment of Chicago’s pension debt jumps every year.

Unfortunately, corporate fund revenue is projected to be only $5 billion next year. Which means as things stand now, even though spending isn’t projected to increase on a year-to-year basis, the corporate fund is facing a deficit of $1.1 billion, or 18%. So crafting a balanced budget for the upcoming fiscal year is already a daunting task for decision-makers. Chicago finds itself in this fiscally precarious position due to a confluence of factors that have developed over time, including everything from poorly designed revenue policy that doesn’t grow with the modern economy, to years of underfunding its pension systems and selling off revenue-generating assets like the Skyway and parking meters.

Meanwhile, state lawmakers consistently make Chicago’s fiscal difficulties worse. Consider for instance how Illinois handles revenue that flows through the Corporate Personal Property Replacement Tax or PPRT. The PPRT is levied against the profits of businesses. It was implemented to replace revenue local governments lost when the state’s 1970 Constitution prohibited them from imposing personal property taxes on business equipment and other non-real estate assets. The Illinois Department of Revenue collects this tax and then distributes the revenue it generates to local governments in accordance with a formula.

Prior to 2009, only a small amount of PPRT revenue was diverted to the state for the sole purpose of covering the Revenue Department's associated administrative costs. Since then, Illinois has increasingly diverted what should be local PPRT revenue to cover unrelated state-level expenses. This year, Illinois diverted 11.5% of PPRT revenue away from local governments to cover state expenses. That cost Chicago $35.9 million in fiscal year 2025.

In what can only be described as "piling on," last year state lawmakers voted to repeal the 1% tax levied on groceries. To be clear, repealing that tax was easy for the state to do, since every penny of revenue it generated went to local governments. State lawmakers and the governor were effectively able to pander to the public’s general antipathy to paying taxes, without losing a nickel of revenue. Chicago, however, stands to lose up to $80 million when the repeal of the grocery tax becomes effective on Jan. 1.

Under the terms of the repeal, municipalities have until Oct. 1 to vote to retain the grocery tax. Given that local governments have more limited revenue options available to them than does the state, and that the state both imposes unfunded mandates on them, while also diverting significant amounts of PPRT revenue intended to fund local governments, it’s no surprise that over 200 municipalities have already voted to retain the grocery tax. It’s incumbent on Chicago to join them by the legislative Oct. 1 deadline. This isn’t something that can be put off until the final budget deal is hammered out.

But given how contentious tax policy is, there will no doubt be posturing from some that the grocery tax should be allowed to expire — even though that decision was neither made by nor debated in the City Council. To be at all credible, anyone making that case should identify exactly what other tax they’d propose increasing or exactly what services they’d propose cutting to make up for the $80 million being lost.

Look, the first thing to do when trying to get out of a deep fiscal hole is to stop digging. The grocery tax has been on the books since 1990, and the decision to eliminate it was imposed on municipalities by elected officials who serve a governmental entity that doesn’t benefit from it. No way Chicago or the hundreds of other local governments across Illinois can absorb this revenue loss without either raising other taxes or cutting services.

Ralph Martire is executive director of the Center for Tax and Budget Accountability, a nonpartisan fiscal policy think tank, and the Arthur Rubloff professor of Public Policy at Roosevelt University.