Soda Taxes

Cook County, Illinois, Experiences Disastrous Rollout of Its Soda Tax

Budget chaos at the state level isn't helping.

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Cook County Commission President Toni Preckwinkle

The rollout of a soda tax in Cook County, Illinois, has been a complete fiasco.

Much to the frustration of businesses and taxpayers in a county that includes Chicago, officials have repeatedly vacillated on applying the soda tax to purchases made with food stamps.

They haven't been able to decide how the tax will be administered or determine how much revenue the tax will generate.

In November 2016, when a narrow vote of the Cook County Commission passed the one-cent-per-ounce soda tax, Commission President Toni Preckwinkle promised that revenue would help balance the budget and put the county on "stable financial footing for the next three fiscal years."

Preckwinkle had projected the soda tax would generate $74 million in its first year. Combined with a projected $80 million in cost reductions, Preckwinkle was confident the county could eliminate its $174 million budget deficit.

County officials, however, had initially planned to tax distributors, who would pass along the cost in the final sale price of a sweetened beverage. Last Thursday they cancelled that plan when the Cook County Revenue Department pointed out the sales price would still be subject to a sales tax.

A tax on a tax is illegal in Illinois.

When the county made the soda tax a line item at the point of sale it ran afoul of the Department of Agriculture, which advised it was against federal law to tax transactions paid for with benefits from its Supplemental Nutritional Assistance Program (SNAP).

The SNAP waiver exempts roughly 873,000 Cook County residents from the soda tax.

The county comptroller said last Friday that he was unsure how much the exemption will reduce the tax revenue projections. Cook County is already having enough of a headache trying to plan around the budgetary chaos going with the state.

Illinois has unfunded pension liabilities estimated at anywhere between $180 billion and $360 billion and a $6 billion annual budget deficit. The root of the problem, Michael Lucci, of the Illinois Policy Institute, says, is "the costs of payments on debt and pension liabilities is crowding spending on everything else."

For the past two and half years, Republican Gov. Bruce Rauner and the Democrat-controlled legislature have been unable to come to an agreement on how to address the budget deficit, much less the pension liability problem, Lucci says.

"Democrats have said they want a tax increase to pay for increased spending…the governor has said that there needs to be economic reforms to offset that tax increase," Lucci says, "but because there is no agreement, nothing is happening."

The result is no budget and a government essentially on autopilot, unable to deliver promised funding to state vendors and local governments, he says.

The state government currently has $14.8 billion in unpaid bills. Cook County alone is owed $48.2 million, a number that was as high as $180 million just last year.

Unable to count on the state government to pony up promised funds, Lucci says most local governments are turning to tax increases. "Chicago is raising taxes like crazy," he says, "Cook County raised the sales tax."

In 2015 Cook County raised its sales tax a whole percentage point to help cover its pension liabilities. Some 20 other Illinois communities did the same at the beginning of this year.

However, that proved to not be enough, and now Cook County is looking to its soda tax to keep its budget afloat, saying that without the revenue it would bring in, the county would be looking at significant layoffs for public safety officials, understaffed court rooms, fewer public defenders and state's attorneys.

A soda tax gutted by the federal government isn't the solution Cook County hoped it would be.