New sales tax coming to Naperville in January

Naperville will charge a home-rule sales tax for the first time beginning Jan. 1 as part of a plan to shore up city finances.

The tax will be 0.5 percent on top of the 7.25 percent already charged by other levels of government, making the total sales tax rate in Naperville 7.75 percent.

The new tax won't be charged on cars, groceries, restaurant food and drinks and medications, but it's expected to bring in $8.5 million a year to help pay down $120 million in debt and build back reserves, which are about $18 million below the level required by city policy.

In a compromise developed by council member Kevin Coyne, the new tax passed unanimously Tuesday night. Several council members and Mayor Steve Chirico praised the ability of the nine on the panel to communicate and seek an agreed-upon solution.

"I'm very proud of how the council remained open-minded," Chirico said. "I know that we're all doing what's best for Naperville."

The tax comes with an expiration date two years after it starts: Jan. 1, 2018. If the council wants to extend it past that date, members will have to vote to do so by Oct. 1, 2017.

It also comes with a promise to abate $2 million a year in property taxes each year the new sales tax is in effect.

"The $2 million property tax rebate is to mitigate the real financial impact of the tax on our residents, bearing in mind that the bulk of the (sales) tax will be paid by outside residents," Coyne said.

The average household in Naperville is expected to pay $74.56 more a year in increased sales tax. But the owner of an average house - which is $385,000 in Naperville - stands to save $42.37 a year on property taxes because of the abatement. That brings the total net increase expected from the new tax to $32.19 a year, City Manager Doug Krieger said.

The final element of the compromise approved Tuesday removes $180,000 a year from the city's special events and cultural amenities fund to put that money toward operating expenses instead, Krieger said. Money in the fund comes from a 1 percent food and beverage tax.

After rebating $2 million a year in property taxes using money brought in by the new sales tax, Krieger said Naperville will have $6.25 million a year to put toward debt reduction and building back reserves.

Chirico called it "the best financial solution we could come up with," even though debt reduction and reserve replenishment won't happen as fast as he hoped when the home-rule sales tax first was proposed at a full 1 percent.

Council member Kevin Gallaher took the opposite stance, predicting the home-rule sales tax could outdo expectations before its two-year expiration date.

"I think the sales tax will be more than adequate. I won't hesitate to terminate the sales tax sooner than the sunset date if it proves we have excess revenues," Gallaher said. "I think that the city should collect what it needs and not one nickel more."

The council approved the new tax over opposition from the Naperville Area Chamber of Commerce, which sees it as "a reduced advantage" to Naperville business' ability to compete for customers, said Nicki Anderson, president and CEO.

The total sales tax rate in Naperville will drop to 7.50 percent on July 1, 2016, when a 0.25 percent tax charged by the DuPage Water Commission expires. The city's new 0.5 percent home-rule sales tax is still lower than the taxes charged in nearby communities, many of which charge 1 percent, 1.25 percent or 1.5 percent.

Many on the council said they did not want to approve a new sales tax, but felt it was necessary to improve the city's financial situation and protect its AAA bond rating.

The city also on Tuesday night voted to place a garbage fee increase of $10.35 a month on household utility bills beginning Jan. 1. The increase from the current $2 monthly rate is expected to generate $5 million a year to help fill an operating budget gap projected at $6.8 million.

"This is a council that had to make this decision. Prior councils had the luxury of sitting on reserves that they could use and we don't have that anymore," council member Rebecca Boyd-Obarski said. "We had to do something about it. We have to be the council that starts to look forward."

City leaders: Naperville needs new financial plan

Should Naperville cut services or raise taxes?

Naperville has a budget deficit and too little in reserves: Now what?

Naperville moving cautiously toward sales tax, garbage fee increases

City seeks best course to balanced budget

Sales tax compromise brewing before Naperville vote

Article Comments
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the "flag" link in the lower-right corner of the comment box. To find our more, read our FAQ.