Why Naperville decided to raise sales tax instead of property taxes

Starting July 1, the total sales tax rate in Naperville will be 7.75 percent to help the city fill a budget gap and avoid a property tax increase for this year's bills.

The rate will rise from 7.5 percent after the city council approved a quarter-percentage point increase by an 8-1 vote Tuesday night. Council member John Krummen was the only one to vote against the sales tax increase, saying he would rather see the city fill its remaining $1.4 million budget hole using property tax payments.

The move was the last step to complete an action council member Kevin Coyne requested in December — that the city look to cut expenses and/or raise taxes to cover a $2.1 million budget increase that brought its 2018 spending plan to $445.4 million.

The city originally approved a levy of $48.6 million, which was $2.1 million higher than last year's amount.

But after saving $200,000 on the cost of taking on new debt, raising the hotel/motel and telecommunications taxes to bring in an estimated $500,000 and bumping up the sales tax to generate an estimated $1.8 million, the city now can abate the levy back to the $46.5 million it sought last time around — and possibly bring in a little revenue to spare.

Council members highlighted the work to hold their line on property taxes, meaning the owner of a $395,000 house, the average in the city, again will owe about $810 to the city this year. That was a feat more valuable than holding steady the home-rule sales tax rate, which has stood at 0.5 percent since it went into effect Jan. 1, 2016.

“For me it's a no-brainer — the sales tax has less impact on our residents than does the prop tax levy,” Coyne said.

It also benefits seniors and spreads the burden among residents and visitors, who each account for roughly half the purchases made in the city, staff members estimate.

“Sales tax, you have a choice: You can spend less and pay less tax,” Chirico said. “It's much kinder to people who are on fixed incomes.”

The entire home-rule sales tax of 0.75 percent is set to expire Jan. 1, 2020 — unless the council takes action by Oct. 1, 2019, to extend it, City Attorney Michael DiSanto said. The tax does not apply to groceries, cars, some prescription drugs and service purchases, Mayer said.

But even before council members approved the sales-tax increase, they looked ahead to a financial forecast that likely will require a property-tax increase next year, according to projections by Finance Director Rachel Mayer.

So before the city begins to address the 2019 budget in August, some suggested the council review its financial principles, which were set in 2015 to guide practices and attempt to solidify the city's AAA bond rating. The principles say the city will:

• Pass a structurally balanced budget each year.

• Continuously improve delivery of necessary, cost-effective services.

• Work to increase reserves to 25 percent and reduce debt by 25 percent by the end of 2022.

“If there's one principal we stick to,” Chirico said, “we should have a structurally balanced budget.”

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