Communities anticipate big drop in sales tax revenue

ROCKFORD — Shortly after the onset of the COVID-19 pandemic, Rockford Mayor Tom McNamara started weekly meetings with all the mayors and village presidents in Winnebago County.

Their biggest accomplishment to date is speaking as one in their request for federal relief funds to help make up for tax revenue lost because of the response to the pandemic.

"We want to get ahead of a couple of things," McNamara said. "We know that they are working on the fourth stimulus package and what we want to do is insure that that fourth stimulus package provides direct relief to local municipalities."

The mayor and Winnebago County Board Chairman Frank Haney have joined Winnebago County Public Health Administrator Sandra Martell at each health department news briefing to stress the importance of social distancing and adherence to Gov. JB Pritzker's stay-at-home order and other efforts to disrupt the transmission of the novel coronavirus.

"Every citizen is impacted, every possible industry has been impacted, and every unit of government has just been devastated," McNamara said. "But I think it's right that we haven't focused on that because the health of our citizens is number one and always will be.

"But when we get to the point where we are moving through this COVID-19 pandemic and we are starting to see a light at the end of the tunnel, we really need to transition to advocating. So I've begun that advocacy process of talking directly to federal legislators and state legislators and to the governor."  

Each of the 11 community leaders has signed off on a letter dated April 9 and sent to each member of the area's congressional delegation: Sens. Dick Durbin and Tammy Duckworth and Reps. Cheri Bustos and Adam Kinzinger.

The letter states in part:

"The previous stimulus packages unfortunately provided no direct relief to municipalities with fewer than 500,000 residents. As you advance additional relief packages, we respectfully request that you design legislation that provides proportionate relief to all municipalities, regardless of population. Those who have signed this letter all lead communities of fewer than 155,000.

"We are communities that are the closest to the people we serve, and while the financial impacts of COVID-19 may lag behind those felt by our businesses and individuals, the result will be every bit as damaging to municipalities that provide critical first responder services and maintain community infrastructure during this pandemic."

The University of Illinois System’s Institute of Government and Public Affairs released a report Thursday titled "What Policymakers Should Know About the Fiscal Impact of COVID-19 on Illinois." The report said the longer the pandemic lasts, the greater the need will be for the state to protect funding for pensions and for Medicaid.

"The other thing to be mindful of is that some of the impact will be immediate, like an immediate drop in sales tax revenue," said report co-author Amanda Kass, associate director of the Government Finance Research Center at the University of Illinois at Chicago.

Kass said the impact of the pandemic on an individual municipality would depend on the financial health of the community and specifically whether the community entered the pandemic with rainy-day cash reserves or with a budget deficit.

'A lot of unknowns'

Machesney Park Administrator Tim Savage said the village collects $3.5 million a year in sales tax revenue, accounting for about 35% of the village budget. Meijers, Menards, Home Depot and Lowe's are the village's biggest generators of sales tax revenue, and all have remained open for business.

Still, Savage said he questions just how much business is being done.

"Anecdotally, you don't see a lot of foot traffic," he said.

The state distributes sales tax revenues to communities on a quarterly basis, but generally after three months lag time.

"We're faced with a lot of unknowns at this point," Savage said of anticipated sales tax revenue.

Meanwhile, the village has put a freeze on non-essential purchases.

"Anything over $5,000 there is an extra layer of review and approval to see if it is a critical item to be ordering at this time," Savage said.

Savage does not expect to have to lay off village employees.

"We contract out services such as police," he said. "We only have 12 employees, and all of them are vital. We don't have any room to lay anybody off."

The village has cash reserves of about $600,000 in what Savage described as a "self-funded insurance pool" for an unexpected downturn in sales tax revenue.

No road projects

Loves Park Mayor Greg Jury also spoke of the unknown, referring to just how much sales tax revenue the city is losing while the pandemic persists.

Like Machesney Park and Cherry Valley, Loves Park does not collect a property tax, but the city does take in about $4.2 million a year in sales tax revenue and about $900,000 in gaming revenue. Other revenue streams include income and motor fuel taxes.

"All of those are going to be hit very hard," said the city's treasurer, John Danielson.

"The one thing that we will know fairly quickly is the gaming revenue because we get that back from the state the month after it is collected. Of course all of the gaming has been shut down. So we know we are not going to get anything for that."

Jury said the only financial casualty, so far, has been the city's $2.5 million in road projects, which will now be delayed until next year.

"We're still going to provide services that our residents need," he said. "We obviously have to make sure from a public safety standpoint that our police and fire are able to perform. That's the No. 1 necessity that we need for our residents."

No pot sales

South Beloit Mayor Ted Rehl said his city's sales tax revenue comes from stateline businesses such as the Flying J and Road Ranger Travel Center. Both are a combination gas station-truck stop. Both businesses also have remained open.

"Here's the problem," Rehl said. "Gas is $1.49 per gallon up here. At $1.49, you're not getting what you got when it was $2.50 per gallon."

Couple low gas prices with reduced vehicle traffic, and the mayor anticipates a "significant" reduction in the city's $1.2 million in sales tax revenue.

"We're going to get clobbered," Rehl said. "We could be looking at a three or four month decline in activity."

As early as September city commissioners were forging ahead in an effort to lure the county's first recreational-only marijuana dispensary by approving a special-use permit to operate a Cresco Labs dispensary at 7000 First Ranger Drive., near the intersection of Gardner Street and Willowbrook Road. City officials expected to collect as much as $200,000 a year in sales tax revenue. The store has yet to open because of the pandemic.

"We don't know when it will open," Rehl said.

A new normal

Rockton President Dale Adams said his village also collects about $1.2 million a year in sales tax revenue, the lion's share of which comes from the Rockton Road commercial district that includes Walmart, Farm & Fleet, Aldi, Casey's and Taco Bell.

"We know that we are going to take a hit on the sales tax revenue," he said, "but we also know that some of our biggest sales tax generators are still open like Walmart, Farm & Fleet and Aldi's. So we'll get something."

Adams said he does not foresee layoffs but said the village is doing some belt-tightening.

"We're doing our best to retain police, public works employees and all the office staff," he said. "They are cutting back on the hours. I know that public works is on a day-on, day-off type of thing. But we're doing our best to keep all our employees, keep their insurance up and make sure that they get paid."

County Board Chairman Frank Haney described the pandemic as a "two-front war" as communities work to keep residents and front line workers safe and at the same time deal with the economic fallout from the pandemic.

Much the way Rockford's three hospitals are working as one health care system, Haney said, the municipalities will need to do the same during and after the crisis.

"If COVID-19 has taught us nothing else, it has taught that municipal and county lines really don't matter on the big stuff," Haney said. "They only matter on the small stuff. There will be a new normal with how government business gets done.

"Resource and information sharing will need to become second nature. Joint planning and problem solving will be the new norm."

Chris Green: cgreen@rrstar.com; @chrisfgreen