Naperville likely to see new sales tax, garbage fee hike

In approving three new financial principles Tuesday, the Naperville City Council agreed implementing a home-rule sales tax and increasing residents' monthly garbage and recycling fee are needed to improve the city's long-term financial strategy.

For the past decade, the city has been using reserves to fill budget gaps. Now the city is about $18 million short of having enough reserves to meet required levels, and officials are projecting a budget deficit of $5 million to $7 million for the coming fiscal year.

The three principles approved Tuesday are:

• The city will pass a structurally balanced budget annually.

• The city will commit to continuously improving delivery of necessary, cost-effective services.

• In the next eight years, the city will work to increase its reserves by 25 percent and reduce its debt by 25 percent.

The first and second principles were approved unanimously, but Councilwoman Patty Gustin and Councilmen Paul Hinterlong and Kevin Coyne voted against the third one, partly because they felt the goal was too aggressive.

Aside from serving as a guide for future financial decisions, the council's approval of the principles likely will help the city maintain the AAA bond rating it has received for 20 consecutive years.

"Our AAA rating is something that we're very proud of here; it's something that we definitely want to maintain," City Manager Douglas Krieger said.

The council did not lock in a rate for the new sales tax, but city staff members recommend 1 percent. It will discuss the rate at 7 p.m. Tuesday, Aug. 18, at city hall.

Finance Director Rachel Mayer said estimates show that, for every quarter percent increase in the sales tax, the city will generate about $4.3 million in revenue. She noted implementing a sales tax would shift some of the tax burden to people visiting the community.

Mayer said the average sales tax rate of comparable communities is about 1.3 percent. Money brought in by the new tax, she said, could only be used to pay down debt or fund future capital projects, such as the Central Parking Facility.

Several residents spoke about the proposed sales tax, including Naperville Area Chamber of Commerce President Nicki Anderson, who said the city's lack of a home-rule sales tax makes local businesses more attractive than those in other towns.

"This is a very complex situation, so I ask that you are thoughtful about this implementation of this tax and how it could positively or negatively affect our business community," she said.

As for the garbage and recycling fee, the council agreed with a recommendation from city staff members to increase it from $2 per month to $12.35 per month in order to fully fund the service. Currently, the city only brings in about $1 million in revenue to pay for the $6 million service. By increasing the fee, the city could bring in about $5 million and close the gap.

The council debated Tuesday whether the increased fee should appear on residents' monthly utility bills or property tax bills, since about 16,000 units - mostly commercial and multiunit residences - don't receive the service. The council agreed, however, placing the fee on utility bills made more sense, as only residents who receive the service would be billed.

City staff members also considered increasing food and beverage or hotel/motel tax rates, Mayer said, but determined "there was not capacity within those taxes to be able to generate the dollars that we needed to be able to support our needs without reducing the competitive advantage for those industries."

There are plans to explore selling some city-owned properties to bring in revenue, but that wouldn't significantly impact the budget gap.