Research Group Can't Stomach Cook County Sales Tax

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CHICAGO – Concerns over the size of Cook County, Ill.'s sales tax hike to shore up pensions overshadow other accomplishments in board President Toni Preckwinkle's proposed budget, a watchdog organization said.

"The Civic Federation is disappointed not to be able to support this budget, which includes many praiseworthy initiatives and is not balanced through gimmicks," said Chicago Civic Federation Laurence president Laurence Msall, who further praises Preckwinkle for moving to tackle the county's pension mess in the absence of state action.

The county board approved a 1 cent increase in its sales tax in July, ahead of the September release of the $4.5 billion budget last month. The hike takes effect Jan. 1.

Most of the $308 million expected from the tax increase in fiscal 2016 will cover a supplemental $270 million contribution to pensions over and above the county's statutory payment. The remainder will fund transportation infrastructure needs and pay debt service. Collections will rise to total $474 million in 2017. The county is carrying a $6.5 billion unfunded pension tab.

"Where the federation takes issue with President Preckwinkle's plan is with the revenue source and the process the county chose to implement the plan," Msall said. "The Civic Federation calls on the county to roll back the proposed sales tax rate and instead implement a mix of additional cuts and increased revenues to fund its proposed pension payment."

The sales tax increase will boost the rate imposed within Cook to 10.25%, an outlier among most major areas.

"The magnitude of the sales tax increase is not reasonable given the other available revenue and expenditure reduction options," the federation added.

The federation offered praise for other budget strides. To close a preliminary deficit of $199 million, the county is cutting some positions and expenses for employee health benefits and would reduce its tax allocation to its health system.

The plan also relies on $44 million from higher tax collections through enforcement, natural tax growth, state funds, and its piece of a surplus in tax-increment financing districts freed to go to local governments. The county would extend a 3% amusement tax to cover ticket resellers, cable TV, and golf and impose a tax on e-cigarettes to raise $21.8 million. A published report out Thursday said Preckwinkle was dropping the amusement tax and would instead push for a hotel tax hike.

Other concerns raised by the federation in its more than 100-page analysis released Tuesday include projected gaps in the future. The report also notes the potential for a legal challenge against the increased pension contributions absent a change in state statutes which currently specify that contributions must come from property tax revenues with the amount tied to a percentage of employee contributions.

Standard & Poor's recently revised its outlook on Cook County to negative from stable amid the county's many financial headaches. It also affirmed its AA rating on the nation's second-most populous county, which is home to Chicago.

Moody's Investors Service, which called the sales tax hike a credit positive, dropped Cook one notch to A2 from A1 in June, largely due to the pensions. Fitch Ratings rates the county A-plus after downgrading it in July 2014, also due to the pension burdens. It assigns a negative outlook. Cook has $3.6 billion of bond debt.

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Illinois
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