Shoppers in Vernon Hills will pay a higher sales tax beginning next year, but village residents are expected to gain an offsetting benefit as a result.
That's because half of the $2.4 million expected to be raised by a proposed quarter-percent home rule sales tax would be used to lower other resident costs, such as recycling fees or utility taxes, village officials said.
The village board Tuesday informally agreed to enact the measure, effective Jan. 1, that would bring total sales tax on purchases in the village, excluding food consumed off premises and drugs, to 7.25 percent.
"I think the rationale, the logic, our obligations all line up behind us having to do this," Trustee Jim Schultz said during a board discussion of the measure.
The decision to follow the recommendation of Finance Director Larry Nakrin was unanimous.
"I don't like putting a tax on anything, but I have to agree with you," Trustee Barbara Williams said.
Vernon Hills faces a $1.2 million annual sales tax rebate bill as an incentive for an ongoing $50 million renovation/expansion at Westfield Hawthorn shopping center. New money is needed to pay that bill and maintain the village's top-of-the-line AAA credit rating, which could amount to as much as $380,000 in interest cost savings during the next five years.
The 10-year Westfield agreement begins in 2015 and requires the village to rebate 100 percent of sales taxes generated by non-anchor mall stores, which is projected to be about $1.2 million.
The agreement can be extended five years to 2030.
Nakrin forecast the situation last year when the Westfield agreement was inked and said a new revenue source would be needed. Information presented to the board Tuesday said the sales tax rebate would have a dramatic effect on village services and infrastructure improvements.
State law allows municipalities of 25,000 or more to impose additional sales taxes, but only in quarter-percent increments. There is no maximum rate, but a quarter-percent is the lowest allowed. Vernon Hills reached the home rule population threshold in 2011.
"I think it's the course that makes the most sense," Nakrin said.
During a presentation to the board, Nakrin and Nikki Larson, assistant finance director, outlined the rationale and uses for the funds.
The intent is to use about $600,000 of the additional sales tax to offset the recycling cost to residents and decrease the electric utility or telecommunications tax. Another $400,000 would be spent on to-be-determined projects, and the remaining $200,000 would be used for road resurfacing, Nakrin recommended.
By its own rules, the village can't use its substantial cash reserve to pay the incentive.
The village does not levy a property tax and half its income comes from sales taxes, and maintaining a large reserve is a key strategy to weathering economic downturns and a major factor in maintaining the credit rating.
Even with the added tax, Vernon Hills would be on the low end of area communities, according to the village.
The total rate in Mundelein is 8 percent, for example, and it's 7.5 percent in Gurnee.
"I don't see it as being a problem. We're talking about 25 cents on a $100 purchase," Trustee Thom Koch said.
The village must adopt an ordinance and submit it to the Illinois Department of Revenue by Oct. 1.