CHICAGO – Cook County, Illinois is facing deep staffing cuts if a legal challenge launched against its penny per ounce tax on sweetened beverages drags on, board president Toni Preckwinkle said.
The warning came Tuesday after an Illinois appeals court on Monday left in place a temporary restraining order that had blocked implementation of the tax just ahead of its July 1 effective date as a result of the lawsuit filed by the Illinois Retail Merchants Association.
"We respect the appellate court decision and will prepare to move forward at the trial court level," county spokesman Frank Shuftan said in a statement.
A status hearing was set for Wednesday but Cook County Circuit Court Judge Daniel Kubasiak pushed it back to July 21 in response to a motion to dismiss filed by the Revenue Department. The TRO remains in place through at least July 21.
“We have suggested reductions,” said Preckwinkle, who warned there’s little stomach among board members for other new or increased tax hikes. “We are preparing for a long court battle."
A total of 1,100 layoffs could occur beginning as soon as next week to offset the $74 million loss of fiscal 2017 revenue.
The groups behind the lawsuit argue it violates the state constitution’s rules on uniform taxation because it treats prepackaged drinks differently from some purchased at local venues. The county turned to the tax as a means to both raise revenue and reduce consumption of drinks that some warn lead to health problems. It covers carbonated soft drinks, fruit beverages that are not 100% fruit juice, sports drinks, and energy drinks.
The county is finalizing a budget for fiscal 2018 that begins Dec. 1. It relies on the tax to generate $200 million. The nation's second-most-populous county, which includes Chicago, is operating this year on a $4.4 billion budget.
The possible loss of $200 million in expected revenue adds to the county’s challenges as it already faced a $98 million gap heading into the next fiscal year that begins Nov. 1. The county is also facing potential longer term strains amid Republican efforts to dismantle the Affordable Care Act.
Preckwinkle warned when releasing the preliminary budget estimates last month of the “potentially catastrophic impact” federal healthcare reform could have on county finances with the potential toll as high as $800 million annually. The impact, if any, on fiscal 2018 is still very much up in the air.
The county has whittled down its taxpayer subsidy for the county health system to $111 million this year from $400 million when Preckwinkle took office in 2010 and that’s mostly due Medicaid coverage users qualified for under the ACA.
The $97.6 million shortfall is driven mostly by state budget woes, rising personnel costs, legacy debt service and increased capital equipment spending.
At the time the preliminary estimates were released, Preckwinkle said no new tax hikes were under consideration and that she remained committed to a three-year pledge made last year not to raise taxes. That pledge was made after the county adopted the soda tax and increased its sales tax to boost pension funding. The lawsuit could throw a wrench in those plans.
The county has two bond sales in the works.
An up to $165 million issue of sales tax backed bonds to pay down general obligation bonds, a revolving facility, and fund the new central campus health center is planned for next month.
Citi is running the books with Cabrera Capital Markets LLC and Siebert Cisneros Shank & Co. LLC as co-seniors. PFM Financial Advisors LLC and Acacia Financial Group Inc. are advising the county and Foley & Lardner LLP and Chico &Nunes PC are co-bond counsel.
The county is also planning an up to $105 million general obligation refunding in September for savings. Loop Capital Markets LLC has the books with PNC Capital Markets LLC and William Blair & Co. LLC as co-seniors. Columbia Capital Management LLC and Phoenix Capital Partners LLC are advising the county. Chapman and Cutler LLP and Reyes Kurson, Ltd. are co-bond counsel.
The county's general obligation bonds are rated A2 by Moody's Investors Service, AA-minus by S&P Global Services, and A-plus by Fitch Ratings. Ahead of a refunding last year, Moody's and Fitch revised the county's outlook to stable from negative while S&P downgraded it one notch. S&P assigns a stable outlook.
