The Naperville City Council wants more information on the impact of increasing the city’s home rule tax before deciding if it is a viable option to replacing the state grocery tax the city will lose in January.
While many communities across Illinois are instituting a 1% local grocery tax to supplant the state tax, some council members indicated they were tepid about following suit during a discussion Tuesday of the options available. The city stands to lose $6.5 million if alternative funding is not found, potentially resulting in cuts to staff and services next year.
Because council members were hesitant to commit to either option until more was known, staff were directed to return July 15 with a presentation on the pros and cons of increasing the city’s home rules sales tax by 0.25%.
“In some ways, it’s easy to say (the state grocery tax) was eliminated, we’ll just replace it. There’s no change, it’s essentially maintaining the status quo,” Councilman Patrick Kelly said. “But I do think we obviously have a choice.”
The question of whether to levy a municipal grocery tax is falling to Naperville and municipal governing bodies across the state because Gov. JB Pritzker signed a bill last year repealing Illinois’ 1% grocery tax, saying it hit poorer families harder than others. However, because the tax goes directly to municipal governments rather than to the state government, towns have been granted the ability to levy their own 1% tax on groceries.
Local governing bodies must approve it by Oct. 1 in order for it to take effect on Jan. 1, 2026, when the state tax ends. A host of communities have opted to do so, including Clarendon Hills, Downers Grove, Carol Stream, Lombard, Westmont and Wheaton in DuPage County.
While staff have been cautioning the tax repeal’s impact on Naperville for more than a year, discussion on how to proceed has ramped up over the past two months. Naperville’s Financial Advisory Board voted 5-1 in May to recommend the council adopt the grocery tax over increasing the home rule tax.
Councilwoman Mary Gibson was among those Tuesday who requested more information before making a decision. “I’d like to see a … fuller argument on home rule sales tax,” she said.
A 1% municipal grocery tax would essentially mirror the state’s current tax, which applies to food not prepared for immediate consumption, prescription medicines and medicinal appliances, such as wheelchairs or hearing aids.
Home rule sales tax is applied to general merchandise and food for immediate consumption purchased within the city. It does not apply to auto sales, groceries and health care items, according to Naperville’s website.
Should Naperville opt instead to up its home rule sales tax by 0.25%, the rate would increase to 1%.
Debate between the two came down to which consumers each tax would affect the most. Some council members said home rule sales tax could potentially impact more discretionary spending whereas grocery tax would apply to more essential items.
“I really don’t like the regressive nature of either of them, but especially for the grocery tax,” Councilwoman Allison Longenbaugh said.
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“Grocery items (are) necessary items for each and every community member,” Councilman Ashfaq Syed said. “It’s going to impact a lot of people. … So I suggest that we look for different options.”
Staff noted that low-income people who receive assistance through the Supplemental Nutrition Assistance Program, or SNAP, would not pay for the grocery tax but would feel the impact of a bump to home rules sales tax.
“When we looked at the home rule sales tax increase, we sort of viewed that … as a true tax increase because now those people don’t get a break,” Naperville Finance Director Ray Munch said. “They pay a quarter percent higher on everything else you buy at the grocery store, which is your paper towels, toilet paper, your toiletries. It’s a meal at McDonald’s or a cup of coffee at Starbucks.”
Staff have also previously stated that the home rules sales tax’s more discretionary nature is what makes it a less stable replacement for lost grocery tax dollars.
“Home rule sales tax is applied to those items that if you’re trying to save money, you could avoid,” Munch said in an interview earlier this spring. “So if there were some type of economic downturn, you could see people cut back in those areas and that would reduce … revenue. Obviously, when you think about that in the context of a grocery tax, groceries are something that people are probably buying regardless.”
Councilman Ian Holzhauer balked at instituting a local grocery tax. He noted that last year’s budget posted a more than $10 million increase to the city’s general fund over the year before and urged that before a grocery tax is levied, the city pursue other options, such as “going through the budget process and seeing what we come up with at the end.”
Councilman Josh McBroom, who is the council’s liaison to the Financial Advisory Board, said that home rules sales tax “can be volatile” but added that he’s “open-minded.” He also said he thinks there are few things in the city budget that “are a waste of money” but the time and place to hash those decisions out would be during budget discussions, which don’t start until July.
McBroom has previously suggested the city cut its Diversity, Equity and Inclusion department to offset the grocery tax budget hole.
City Manager Doug Krieger said which, if any, revenue source the council chooses to replace the grocery tax is important to know before budget discussions start because an “approach to our budget with a six million dollar delta will be very different.”