Suburban officials who look to sales taxes for the bulk of their towns`
revenues-and they are many-are keeping a wary eye on a retail market made increasingly jittery by recession and talk of war.
While the typical Illinois municipality relies on sales-tax revenues for about 15 percent of its day-to-day expenses, that number has been turned on its head in suburbs across the metropolitan area.
Oak Brook, for example, relies on sales-tax revenues for three-quarters of its operating fund, making it one of the most dependent in the region on this revenue source. Downers Grove, St. Charles, Villa Park, Schaumburg and Calumet City rely on the sales tax to generate more than half of their operating funds.
Schaumburg, for example, relies on sales-tax revenues for well more than half its operating fund. Neighboring communities such as Arlington Heights, Elk Grove Village and Palatine are little different. They get 40 to 50 percent of their operating funds from sales taxes.
If a major retail slowdown hits, such communities may look for a quick revenue fix in new taxes and user fees or reductions of city services such as pothole repair.
Sales-tax revenues already have taken a hit in Naperville. While receipts thus far this fiscal year are 4 percent ahead of last year`s, revenues are about $500,000 short of the $6.6 million that budget officers had expected to have at this time in the year.
The Du Page County suburb relies on the sales tax to generate 29 percent of it operating funds.
”Yes, we`re concerned,” said Craig Blomquist, acting Naperville finance director. ”We`re being very judicious in our purchase orders, looking very closely at filling new or replacement positions and watching very carefully how money is spent.”
George Coney, Elk Grove Village`s director of finance, said, ”Unless we start cutting expenditures or find other sources of revenues-and there are few that are palatable-we`ll be running into deficits in three to four years” of a downturned economy.
The dropoff in Elk Grove Village is dramatic because it follows year-to-year sales-tax increases of as much as 12 percent in the 1980s, according to Coney.
Concerns are shared by municipal officials across the region.
In Naperville, where sales taxes account for 29 percent of operating funds, revenues are about 4 percent ahead of last year`s but about $500,000 short of the $6.6 million that budget officers had expected to have at this time in the year.
Sales-tax revenues are trailing last year`s level by 1 percent in Elk Grove Village, a northwest suburb that posted year-to-year sales-tax increases of as much as 12 percent in the 1980s, according to Coney.
The recession that has hit other parts of the country is affecting Elk Grove Village because about 80 percent of its sales-tax revenues are collected from the 3,000 companies in the Centex Industrial Park, companies that sell all across the U.S.
Finance experts said communities can manage a falloff in sales-tax revenues of, say, 5 percent by drawing down reserves, postponing major equipment purchases or imposing hiring and salary freezes.
But a larger decline, the kind that might be caused by a dragged-out war or a severe economic slump, would pack a wallop.
”Suddenly you could see proposals for utility taxes, food and beverage taxes, a doubling of vehicle registration fees-stuff that has a relatively quick turnaround,” said Steven J. Hovany, municipal consultant and president of Strategy Planning Associates, Schaumburg.
”But most communities already have taxed to the limit and have bonds out to the limit,” Hovany said, so a suburb might then have to defer such services as street repairs or, as a last resort, lay off non-essential personnel.
William Stafford, executive director of the Illinois Government Finance Officers Association in Evanston, said no community sets out to become so reliant on the sales tax, but many do by encouraging development of retail stores and companies.
Politically speaking, it`s wiser to nurture one`s sales-tax base than to raise property taxes.
And cities love the sales tax, Hovany said, because, ”It`s high income, paid regularly through the year, inflation proof, expandable.”
Annual financial reports filed with the state comptroller`s office for the 1989 and 1990 fiscal years show that the suburbs` reliance on the sales tax ranges from lows of about 12 percent in Evanston and 13 percent in Oak Park, to 33 percent in Waukegan, 40 percent in Oak Lawn, 46 percent in Libertyville and Orland Park, and as high as 83 percent in Countryside.
According to annual financial reports filed with the state comptroller`s office for fiscal 1989 and 1990, the percentage of the suburbs` operating fund generated by sales taxes ranges from about 12 percent in Evanston to 83 percent in Countryside.
In between are Oak Park, 13 percent; Waukegan, 33 percent; Oak Lawn, 40 percent; and Libertyville and Orland Park, 46 percent each.
Chicago, by way of comparison, gets slightly less than 20 percent of its operating dollars from retail sales taxes.
Municipal officials still vow they will meet their budgets this year. Even if sales taxes fall somewhat short of projections, they said, there are other revenue sources and reserves to plug the gap.
But all bets are off if war breaks out or if the recession that has mired other parts of the country engulfs Illinois soon.
One state painfully familiar with the volatility of retail sales is Connecticut, which this year is relying on an 8 percent state sales tax to generate 38 percent of its operating fund.
The state had counted on sales-tax revenues growing by $150 million, but recession-tempered revenues have stayed virtually flat. Tax revenues from other sources also have fallen short of projections, while state spending climbs.
As a consequence, Connecticut faces the worst fiscal crisis in its history: More than $2 billion in red ink is expected over the next 18 months, according to the Hartford Courant newspaper.
Illinois` sales-tax revenues, which accounted for about 30 percent of the operating fund in fiscal 1990, through last month were running 4.4 percent ahead of the year-earlier period, according to Dale Smith, chief economist of the state Bureau of the Budget.
The recession elsewhere is affecting Elk Grove Village: About 80 percent of its sales-tax revenues come from the 3,000 companies in the Centex Industrial Park, and many of those companies sell all across the country, said Coney, the village`s director of finance.
Meanwhile, Arlington Heights, which gets 40 percent of its operating funds from sales tax revenues, budgeted for a modest 2.3 percent sales increase this year. But revenues are running 4.4 percent behind last year`s.
”Luckily, we have other revenues helping us out,” said Bob Kolodziej, deputy finance director.
”A 1 percent food and beverage tax took effect July 1 and is generating more receipts than projected,” he said. ”We`re also realizing good returns on our investments and slower-than-anticipated expenditures . . . so we`re optimistic we`ll break even or show a slight surplus by the end of our fiscal year” on April 30.
Village President William Maki said that when Arlington Heights went before Moody`s Investors Service for a review of its bond rating in late 1988, Moody`s told the village that as a revenue source, sales taxes were ”the most immediately vulnerable to the economy” and recommended that the village diversify its tax base.
Since then, village trustees have approved the food and beverage tax, though they rejected a real estate transfer tax.
In Schaumburg, sales-tax revenues in this fiscal year are running ahead of last year`s, largely because of sales increases at Woodfield Mall, which accounts for about one-third of the village`s retail sales.
According to Keith Wendland, Schaumburg director of finance and administration, that growth lags behind the 4.5 percent growth budgeted for. But, he said, better-than-expected receipts from other revenue sources likely will close the gap. Failing that, Wendland added, the village has $14 million in reserves that it can draw upon.
In Oak Brook, sales-tax revenues in the fiscal year that started May 1 are running 3.4 percent of the prior year`s level. However, the village budgeted for a 5.5 percent increase.
”We`re constantly concerned,” said Village Treasurer Terry Klein, ”but we`re not panicking.
”It`s difficult to ascertain where we`ll be until the December sales-tax revenues come in, and we won`t receive them (from the state) until March,”
Klein said.
