CHICAGO – Cook County, Ill., merchants will begin collecting a penny-an-ounce tax on sweetened beverage on Wednesday.
Cook County Circuit Court Judge Daniel Kubasiak on Friday lifted a temporary restraining order and dismissed a lawsuit challenging the constitutionality of the tax. It had been set to take effect in early July when the judge granted the Illinois Retail Merchants’ request for a temporary restraining order blocking implementation.
The delay had prompted the announcement of hundreds of possible layoffs as the county prepared for the possible loss of $68 million in the current fiscal year and as much as $200 million in fiscal 2018 if the case had dragged on long.
“We believed all along that our ordinance was carefully drafted and met pertinent constitutional tests,” board president Toni Preckwinkle said in a statement.
The delay has so far cost the county $17 million. “Until we are able to fully implement and collect revenues from this tax, we will continue to review our financial position and make adjustments accordingly,” Preckwinkle added.
The ordinance was approved last November and the tax was set to take effect July 1. The association said Monday it continues to weigh its next step. It could appeal the decision, amend its complaint and refile it, or drop its opposition.
The group argued that the tax violates the uniformity clause on taxation in the state constitution because the tax is applied differently for beverages purchased at a store or other venues. The judge agreed with the county that the tax abided by state laws.
The county turned to the tax as a means to both raise revenue and reduce consumption of drinks that some healthy eating advocates, including former New York mayor Mike Bloomberg, warn may 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, which begins Dec. 1. 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 would have added to the county’s challenges as it already faces 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.
The $97.6 million shortfall is driven mostly by state budget woes, rising personnel costs, legacy debt service, and increased capital equipment spending.
The court’s action eases some pressures which Fitch Ratings noted in a Friday report that delved into the impact of the new $36.1 billion fiscal 2018 state budget on local governments. After two years of state gridlock the budget has some benefits and downsides for the county, Fitch said.
“Cook County should benefit from a reduction in delayed Medicaid payments to its health system,
which threatened to strain liquidity,” Fitch wrote.
The county is facing the loss of some sales tax due to the imposition by the state of a 2% administrative
fee on sales tax collections, a 9% reduction in personal property replacement taxes, and 10%
reduction in local government distributive payments. The impact of the latter may be partially or fully offset by catch up payments on a cash flow basis due to a shift in how the funds are distributed, Fitch said.
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. The county is also planning an up to $105 million general obligation refunding in September for savings.
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.