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An Ordinance to Adopt a 1% Grocery Tax to Replace the Discontinued State Grocery Tax
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Introduction
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This is an ordinance approving the adoption of a 1% grocery tax to replace the discontinued grocery tax by the State.
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Recommended Action
Staff recommend that the Village Board adopt a 1% local grocery tax to replace the grocery tax, which is being discontinued.
Prior Board Action
There is no prior Board action associated with this specific item.
Background
In 1990, the State of Illinois eliminated the traditional sales tax on the sale of groceries, replacing it with a 1% grocery tax to be distributed to local governments. The proceeds of the 1% grocery tax have been distributed to municipalities through the same process as other State-collected sales and use taxes.
The Village currently collects approximately $1.5 million per year from the grocery tax, which does not include the potential future revenue of any new retail grocery development. If it wishes to continue collecting this revenue without interruption, the Village Board must adopt an ordinance and submit it to the State no later than October 1, 2025, to allow for the replacement tax to begin on January 1, 2026.
Timing Considerations
The deadline for approval of the Ordinance is October 1, 2025.
Budget Impact
Total General Fund revenues from all sources for fiscal year 2025 are expected to come to approximately $63.6 million. (This figure does not include property taxes collected for pensions or debt service, nor motor fuel taxes collected for the Motor Fuel Fund.) For FY 2026, total revenues are expected to increase by $2.8 million, which is a 4.7% increase. This includes an increase of approximately $1.0 million in vehicle license renewals and a $400,000 increase expected in traffic enforcement. Increases in property taxes, income taxes, and real estate transfer taxes are expected to be offset by lower revenues from state income tax, use taxes, and investment earnings.
On the expenditure side, the budget assumes that personnel costs will rise by 3.1%, from $43.5 million to $44.9 million. Other operating costs, including services, supplies, and utilities, are expected to increase by 3%, from $18.0 million to $18.6 million. Combining the two figures, the Villages' total operating expenses will amount to $63.5 million, resulting in an operating surplus of $0.1 million for the fiscal year.
If the revenues from the grocery tax are no longer available, it would likely cause a budget deficit of approximately $1.4 million. This deficit would need to be addressed through alternative revenue sources, drawdown of fund balance, program cuts, or some combination of the three.
Staffing Impact
There is no staffing impact associated with this item.
DEI Impact
Grocery taxes are generally considered regressive, meaning they disproportionately affect lower-income households.
Community Input
There has been no community input provided regarding this item.
Staff Recommendation
Staff recommend that the Village Board adopt a 1% local grocery tax to replace the grocery tax, which is being discontinued.
Alternatives
There are no alternatives associated with this item.
Anticipated Future Actions
There are no anticipated future actions associated with this item.
Prepared By: Donna M. Gayden, Interim Chief Financial Officer
Reviewed By: Jack Malec, Assistant to the Village Manager
Approved By: Kevin J. Jackson, Village Manager
Attachment(s):
1. Grocery Tax Frequently Asked Questions
2. Oak Park Grocery Tax Ordinance