Tag Archives: sales tax

Many Chicago area suburbs with significant increases in sales tax revenues

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For a number of suburbs in the Chicago region, 2022 was a good year for sales tax revenues:

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A Daily Herald analysis of 95 suburban sales tax receipts during the state’s 2021 and 2022 fiscal years shows the towns combined to average a 28.6% increase in sales tax revenues, resulting in nearly $230 million more…

First, federal and state laws that took effect in January 2021 required companies to assess sales taxes for online purchases at the rate of the buyer’s hometown…

Then, COVID-19 stimulus funds paid directly to Americans reinvigorated purchases on physical products…

And the final catalyst for sales tax revenue growth statewide has been the historic increase in the inflation rate.

The article goes on to discuss two issues I was wondering about: how will these communities spend this money and will this revenue increase last?

My guess is that there will not be too many major changes even with these increases. Because it is not clear whether the money will continue to come in at similar rates (though the online source sounds durable), the money could be limited to particular items or shorter projects.

At the same time, an increase in monies could help address important needs and build a good foundation for the next few years. Could some communities complete a project that they had been waiting on? Or, could they start something rolling for the longer-term that needed resources to get rolling?

These increases could also lead to some interesting conversations about what to prioritize and spend on. (Additionally, communities without bumps might have interesting discussions.)

How much a declining mall can cost a community in sales tax revenue: almost $20 million a year

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The decline of Stratford Square Mall in Bloomingdale, Illinois meant the sales tax revenue for the community dropped dramatically:

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Stratford was still a cash cow in 2012, generating $20.3 million in sales tax revenue. But that number has quickly dwindled in the last 10 years, with the mall producing just $466,080 in 2021, village officials say.

“Dead malls” or struggling malls are a problem in numerous American communities. Popular for decades, these properties provided shopping, entertainment, and social space for visitors, jobs, and tax revenues for communities.

As communities look to transform these properties (and the possibilities are broad), one large factor will be how much tax revenue the new land use generates. Can they ever come close to generating that kind of sales tax revenue? Restaurants and entertainment or experiential spaces can help close that gap. Residences, however, do not bring in that kind of money (unless those new residents shop regularly at local businesses). If not, what other clear benefits will the reconfigured properties offer the community?

The billions in sales generated in a big suburban edge city

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Joel Garreau defined an edge city as a suburban place with lots of office and retail space. Just how much retail activity takes place? A recent report found the edge city of Naperville, Illinois generated billions in sales in 2021:

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Naperville continues to reign as the top suburb in retail sales for the fifth year in a row, a recent report shows.

The city in 2021 recorded sales of $4.3 billion, $540 million more than No. 2 Schaumburg, according to the annual report from Chicago real estate and retail consultants Melaniphy & Associates…

For Naperville, 2021 restaurant and bar sales climbed to a record $443 million, up 34% from 2020′s pandemic plummet to $330 million after hitting $431 million in 2019…

By far the largest contributor to retail sales in Naperville is under the automobile dealership and gasoline category.

In 2021, Naperville figures rose by 33% over the previous year to $1.7 billion, which was the highest percentage increase throughout the Chicago metropolitan area, according to the report.

Some of the lead for Naperville could be tied to their large population and land area. Many suburban communities are not this big. For example, Schaumburg has roughly a little more than half the population of Naperville and about half of the land area.

But, I am more interested in the absolute figures. One suburb had over $4 billion in sales. This is a lot of money in one community. And hundreds of millions were spent in numerous categories, including restaurants, groceries, cars, and lumber, hardware, and building supplies.

Naperville has several areas that help generate these sales. In northeast Naperville, Ogden Avenue and Diehl Road (and adjacent areas) have retailers, restaurants, automobile related businesses, and more. Downtown Naperville is a vibrant food and retail scene. The Naperville area adjacent and near the Fox Valley Mall has a lot of activity. Business activity in southwest Naperville is a more recent addition.

In short, Naperville is not just a bedroom suburb with a high quality of life: it is full of retail activity even as it contains thousands of homes and dozens of subdivisions.

Less restaurant and retail business, lower local sales tax revenue

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The ongoing effects of COVID-19 on business activity, particularly restaurants, will impact communities:

Restaurant dining room closures resulting from the coronavirus pandemic are wreaking havoc on the industry’s bottom line and upending the lives of many working in the service industry. Those losses also will be felt by communities that rely on restaurant sales taxes and special food and beverage taxes to help fund municipal services. Some suburbs will feel the effects much more than others because of how heavily they rely on such taxes.

Sales taxes at restaurants and bars contributed more than $2 million a week to 83 suburbs, a Daily Herald analysis of 2019 tax records on the Illinois Department of Revenue’s website shows.

In a dozen suburbs, sales taxes from restaurants and bars represented more than 20% of all their sales tax revenue last year…

“It’s not just restaurants and bars, though,” said Rob Karr, president and CEO of the Illinois Retail Merchants Association, pointing out many sources of sales tax have had sharp drops. “Everybody in the retail sector has been negatively impacted, aside from groceries.”

With more Americans eating out in general, the ability of restaurants to draw visitors from other communities, and connections between eating and other recreational and cultural activities, eateries can be important sources of revenue.

Communities can aspire to have a diverse tax base where they draw tax revenues from a variety of sources, including sales taxes and property taxes. At the same time, some communities develop niches where they focus on one business sector or they have a historic strength. Diversification may be difficult to achieve and depend on a variety of forces including actions by local officials and leaders, the demographics of the community, historic patterns, and actions by business owners and larger economic forces. In other words, the character of a community’s tax base develops over time, can change, and at least in part depends on outside actions and forces beyond a community’s control.

It will also be interesting to see where the budget issues that municipalities face fall among the other economic concerns. Sales tax revenues are part of the picture but so might be property values if businesses need to close and there are not other businesses to take their place. If the federal government and states are also facing big hits to revenue, what might happen to municipal budgets?

Chicago suburbs without property taxes – but perhaps not for much longer

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In a region known for high property taxes, at least a few suburbs outside Chicago have no property taxes:

A town of about 40,000, Carol Stream managed to avoid a property tax even when another outlier, Schaumburg — a village with a much larger retail base — took the leap during the Great Recession.

But officials say Carol Stream is facing significant budget pressures from rising pension costs. If it maintains the status quo, projections also show the village would exhaust capital reserves during the third year of a five-year plan for roadwork and infrastructure projects…

In Oak Brook, another town that doesn’t charge a property tax, candidates in the last mayoral race took stock of the financial challenges from flat sales tax revenues. Carol Stream also saw a 2.4% drop in sales tax dollars — the village’s largest revenue source — from calendar years 2017 to 2018.

Suburbs have multiple ways to reduce or eliminate residential property taxes. Sales tax revenue can come from shopping malls, big box stores, and other retail options. Schaumburg and Oak Brook have sizable shopping malls surrounded by many more retailers. Communities can also seek out industry; Carol Stream founder Jay Stream intentionally set aside much land for industrial parks (which are still there). Some suburbs would not like this as industry could conflict with an ideal of quiet neighborhoods of single-family homes.

The article suggests these suburbs with no property taxes will have to reconsider because of declining sales tax revenues and rising pension costs. Given the fate of shopping malls and the problems facing retailers, even in successful malls in wealthy areas like in Oak Brook and Schaumburg, communities need additional revenue.

Suburbs typically do not have the ability to quickly counter declining sales tax revenues. In order to not have property taxes in the first place, certain decisions had to be made long ago. Then, later decisions build within a framework of no property taxes. Making changes to land use takes time for study, approval, development, and then reaping benefits. A suburb cannot say it wants to bring in more sales tax revenue and line up a set of retailers operating within a year.

The fate of these suburbs will be worth checking in five years to see whether they can hold on against levying property taxes.

(Reminder: this does not mean residents in these communities do not pay any property taxes. Rather, their suburbs do not collect property taxes even as school districts and other taxing bodies do.)

Losing sales and property tax revenue as stores close

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The difficulties facing retail stores also have an effect on local governments who rely on sales tax and property tax revenue:

Nationwide, sales taxes comprise nearly one-third of the taxes that state governments collect and about 12 percent of what local governments collect, according to Lucy Dadayan, a senior researcher at the Nelson A. Rockefeller Institute of Government, a New York-based research group. “The epic closures of the brick-and-mortar stores is troubling news for state and local government sales-tax collections,” she said. They’re already feeling the hit: States’ tax revenues grew just 1.9 percent between 2014 and 2015, after growing 5.8 percent in the previous four quarters, according to the Rockefeller Institute. Local-government sales-tax collections grew just 1.7 percent, after growing 7.5 percent in the previous four quarters. In Ohio, state tax revenues grew just 0.1 percent, when adjusted for inflation, between 2015 and 2016, according to Dadayan. When revenues don’t continue to grow, governments have to slow down spending and can’t readily invest in long-term projects…

Clark County is not alone. In the southeastern part of Ohio, near the border with West Virginia, Belmont County gets $17 million of its $22 million budget from sales-tax revenues, Mark Thomas, a county supervisor, told me. The county has lost a bevy of retailers of late, including Elder-Beerman, Hhgregg, MC Sports, and Radio Shack. A Kmart in St. Clairsville is expected to close soon, according to the company. The decline in sales tax isn’t the only thing that hurts revenues—abandoned malls mean less revenue from commercial property taxes too. Local governments also see lower income taxes and, when retail workers are unemployed, they spend less, creating a vicious cycle of less and less revenue. “That trickle-down effect is huge,” Thomas said…

States that have seen manufacturing companies depart are bearing much of the brunt of the retail closures, according to Dadayan’s research. She tabulated where Macys, Kmart, and Sears have announced in the past year that they are planning to close stores, and found that Pennsylvania will have the most of those total store closings, at 16. Ohio and Michigan have the second-highest number, at 15 each, alongside Florida. Other states that have bigger populations have much lower combined closings. California, for example, only has eight.

The closures raise the question of what state and local governments will do if retail continues to evaporate. Already, many local governments are attempting to raise taxes to make up for budget shortfalls. Springfield asked voters to approve an income tax in November; the measure failed. The sales-tax rate at both the local and state levels has been creeping up in Ohio as governments try to raise taxes to make up for declines, according to Jon Honeck, the acting director of the Greater Ohio Policy Center, a local think tank. Ohio has also cut back on revenue-sharing between states and local governments since the election of Governor John Kasich in 2010, making it more difficult for local governments to make ends meet. “Some have just cut services, since the state is not going to help them out,” Honeck said.

Two quick thoughts:

  1. Communities have competed for decades over shopping malls and retail establishments. This competition could only increase though it may be less about the opening of new stories (everyone wants replacements for old establishments – for example, see the fate of Dominick’s grocery stores in the Chicago region) and more about retaining existing stores and asking companies to close stores elsewhere.
  2. It is interesting to see which areas are experiencing closures. Not all malls or stores are doing poorly but the successful ones are likely in wealthier areas that will do even better comparatively with the ongoing tax revenues. It is very difficult to convince businesses to locate in communities with less income.

Suburban communities add business district taxes but what are developers doing with the money?

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A number of Chicago suburbs have instituted business district taxes that partially funnel money to developers:

The business district tax is becoming more common as municipalities struggle to recover from the Great Recession and loss of shoppers to the Internet. Leaders in both Roselle and Villa Park initiated 1 percent business district taxes within the past year, the maximum rate on districts that cannot exceed 1 square mile. In some suburban locations, the additional business district tax can raise the sales tax to 9.25 percent, equal to the sales tax in Chicago…

Bloomingdale has two such districts. One adds a 1 percent sales tax to purchases inside Stratford Square and another adds the same percentage at Indian Lakes Resort, where it’s used to help pay off $4.8 million in village-issued debt that went to the resort for improvements…

Last year, the village paid the owners of the mall $1,199,151, which is more than 95 percent of all the money generated by the business district tax. Since the tax was implemented, the village has paid the mall owner more than $8 million. According to village finance records, the mall owner still is owed more than $11 million…

Lombard has a similar deal with its mall owner. The village instituted a 1 percent business district tax almost a decade ago. It helps push the sales tax rate at Yorktown Center mall to 9.25 percent.

Lombard’s deal allows up to $25 million in business district taxes to be rebated to Yorktown’s owner through 2024, in exchange for an addition that was built onto the mall where an abandoned Montgomery Ward once stood. So far, the mall’s owner has received almost $4.2 million from the business tax…

Taxpayers in Oakbrook Terrace are the ones with skin in the game. The city borrowed nearly $8.2 million to spur development of the Oakbrook Terrace Square Shopping Center. City officials did not return calls seeking comment about the city’s stake in the shopping center. However, according to the city’s budget documents, the investment has yet to pay off.

Given the problems facing the American shopping mall as well as the financial difficulties facing many suburbs, perhaps these suburbs think such taxes are necessary to help keep sales tax generators in the community. Yet, if the extra money generated is given to developers who then line their own pockets, how much is the local taxpayer helped? This raises similar questions to giving corporations tax breaks to locate their headquarters or facilities in suburban communities. Few politicians or residents want to lose a potential tax revenue generator – especially a large shopping mall, even if they are relatively ugly and detract from local businesses given their reliance on chain stores – but there is often little public discussion of the trade-offs involved with the tax breaks.

Are there suburban shopping centers that don’t have such a tax and if not, do they advertise to this effect?

Chicago suburb of Long Grove wants to privatize almost half of its public roads

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Maintaining roads is expensive and the Chicago suburb of Long Grove has a potential solution: privatize a lot of its public roads.

Facing an annual funding gap of more than $1 million, Long Grove trustees have twice in recent months affirmed a plan that could privatize nearly half of the village’s public roads — transferring the cost of upkeep and plowing to the residents in the process…

Experts in public planning and municipal finance agree that Long Grove has hit upon an unusual potential solution to a commonplace problem. They say other communities also struggling to make ends meet could follow suit as aging roads deteriorate and revenue streams dry up. Yet such plans could eat away at the public’s trust in local leadership even as they mitigate public deficits, warned Joseph Schwieterman, a DePaul University transportation professor.

“It’s going to create resentment that city hall has broken its contract to fix the roads, and that could lead to turmoil that tears at the social capital of a community,” he said.

What has surprised some in and around well-to-do Long Grove is that the community — with its spacious home lots, ample green space and refined, rural character — finds itself in the situation at all. Recent census figures count it among the wealthiest villages in the Chicago area based on median income. Yet having more affluent residents doesn’t necessarily equate to a strong tax base, especially in towns that have little or no industry…

Local leaders first realized in the 1970s that to pay for maintaining roads without a property tax, something had to give, said Long Grove Village Manager David Lothspeich. After that, the board allowed public streets in new subdivisions only if they were main roads, and eventually entire subdivisions sprang up without a single public road, he said.

It sounds like a set of trade-offs: the community has a particular image and character involving big lots, nice homes, and no property taxes but to help maintain that character means limited commercial development. However, having less commercial or industrial development means fewer sources of property and sales taxes that can be used to maintain the community’s infrastructure. The money has to come from somewhere…

However the money is raised in the future for roads, it will be interesting to see how this affects the community’s character and image. Will people move away? Will it be as attractive?

Another suburb dealing with a similar issue is Winfield. The village has had difficulty paying for road maintenance and the debate in recent years has been whether to allow commercial development along the Roosevelt Road corridor that passes through the southern part of the community but it currently limited to larger lots.

Who pays in and receives tax money for transit in the Chicago metropolitan region

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Amidst the fight over tax dollars for mass transit in the Chicago region, here is a breakdown of where the tax money comes from and who gets to spend it:

Metra, the CTA and Pace receive around half of their operating revenues from fares, but most of the remainder comes from sales taxes. It’s calculated using unbelievably complicated state formulas that incorporate geography into divvying up the spoils. However, a 2008 state law change raising the sales tax left the disposal of some of the money up to the Regional Transportation Authority. That’s meant power struggles the last two years.

A look at 2012 sales tax dollars received by the RTA shows that 27.5 percent of that revenue derives from Chicago. The biggest chunk, or 50 percent, comes from suburban Cook County. Elsewhere, DuPage County contributed 8.6 percent, Lake 5 percent, Will about 4 percent, Kane about 3 percent and McHenry not quite 2 percent.

There are two different ways to interpret those numbers. Cook County, including Chicago, delivers 77 percent of transit funding. Or — the suburbs combined provide 72 percent of transit funding compared to Chicago.

In terms of revenue going out in 2014, the CTA will get $661 million in operating funds from the RTA, Metra receives $365.4 million, and Pace $151.6 million. When you cut up that pie, it’s 56 percent CTA, 31 percent Metra and 13 percent Pace.

So it sounds like complaints from DuPage County about the money they are contributing is a smaller slice of the pie overall – it is suburban Cook County that is chipping in the most.

Another issue: suburbanites might complain that they are not getting in return the money they put in but isn’t more expensive to run good mass transit in the spread-out suburbs? In other words, if the collar counties wanted mass transit similar to that of Chicago, wouldn’t it cost more from everyone?

When Dominick’s stores close, suburbs lose tax dollars, gathering places

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Amidst the news stories detailing the closing of Dominick’s stores in the Chicago area, one article highlights its effects on suburban communities:

Bruce Evensen, a DePaul University journalism professor, compared the news with the closing of Marshall Field’s in 2006. He said he has been a longtime Dominick’s shopper after living in the Arlington Heights and Mount Prospect area for the past 20 years.

“It’s a sad day,” said Evensen, 62. “To see it close is not just the closing of a store but the closing of an experience. After years of checking out, you get to know the staff, their families and their dreams. It’s the ending of that part of their lives.”…

Naperville City Manager Doug Krieger called the stores significant sales tax contributors, and expressed hope that new tenants would fill the locations.

Michael Cassa, president of the Downers Grove Economic Development Corp., said that it’s too early to know the potential effect, but the village’s only Dominick’s sits in a busy commercial complex along the main business corridor.

There are two arguments as to how closed stores will affect suburbs:

1. They will lose out on tax dollars. Grocery stores are the sort of businesses that have regular consumers – we all have to eat. Additionally, it can be hard to refill big box stores that close down. New businesses might want to construct new buildings and it would be hard for a single large company to take over all of the closed stores. That means individual suburbs will have to try to attract new businesses into large buildings.

2. In suburbs which are marked by fragmentation and more home-centered social life, persistent social institutions are limited. Local schools and religious congregations help fill that void but grocery stores could also play that role. Again, since people have to eat, customers are likely to be in and out regularly. They may even be there enough to know a lot of the details about the store as well as get to know employees and fellow customers. Interestingly, the same claims are rarely made about Walmarts or Targets – but perhaps similar arguments will be made in the future once these stores have been in communities for decades.

It is interesting to watch the sadness over Dominick’s closing. There are certainly lots of workers affected and it is unclear where they will all end up. However, this cycle of corporate merging and sell-offs seems fairly normal to me. Perhaps that is because I grew up in the Chicago area going to other grocery stores. Or perhaps it is because I’m used to our times where companies are viewed less as community institutions and more of places providing services that could be here one year and not the next.