Spreading the Pain Print
News/Features - Feature Stories
Tuesday, 03 February 2004 18:00
While the Iowa Cities have been talking trash to alleviate budget woes – and running into serious public opposition – Moline and Rock Island have turned to taxes, looking for ways to raise revenues that are less painful to their residents. The goal is for the rest of the Quad Cities to shoulder some of the cities’ financial burden.

Times are tough all over, as the governmental pass-the-buck game has left many cities with serious budget problems. Illinois and Iowa state governments have taken money away from municipalities – by reducing financial support or through new fees or mandates – and the cities have been forced to cut services or staff, raise taxes or fees, or a combination of those.

In Iowa, Bettendorf and Davenport have looked to garbage fees to solve budget problems, but they haven’t gotten very far. Davenport City Administrator Craig Malin suggested a garbage fee – the city presently doesn’t have one – but the city council to this point has rejected it. Bettendorf actually passed a major garbage-fee increase – tripling the cost to residents – but rescinded it late last year in the face of public opposition. (See “Left Holding the Bag,” River Cities’ Reader Issue 458, January 7-13, 2004.) As those cities grapple with their budgets for the upcoming fiscal years, those fees will almost certainly be back on the table, as city councils try to avoid cutting services.

The Illinois Quad Cities have taken a different route, with Moline increasing its sales tax one-quarter percent starting on January 1 and Rock Island passing a 1-percent food-and-beverage tax last week. (The Rock Island tax will probably go into effect April 1.)

These taxes are designed to take a big chunk out of the cities’ expected shortfalls. At the beginning of its budget process, Moline projected a $3-million deficit for the fiscal year that began January 1. And Rock Island anticipated a $1.2-million shortfall for the fiscal year that starts April 1. Moline’s sales tax is expected to generate $1.6 million a year, while Rock Island’s new tax should create $400,000 in new revenue.

The approach of the Illinois Quad Cities has been largely political. Unlike fees that fall exclusively on residents, the sales and food-and-beverage taxes affect people from outside the municipalities as well. Rock Island shoppers, for instance, pay the new Moline sales tax at SouthPark Mall, while Iowa residents pay the food-and-beverage tax when they eat or drink in The District of Rock Island.

“This would be paid by … visitors who are using our infrastructure,” said Kathleen Carr, Moline’s finance director. She added that the sales tax most affects people who can afford to purchase goods, and not property owners with fixed incomes.

The spread-the-deficit philosophy is also espoused by Rock Island officials in pitching the food-and-beverage tax. “The burden will be shared … by people who live in the whole area,” said Rock Island City Administrator John C. Phillips.

But initially, the food-and-beverage tax will probably be absorbed by businesses rather than customers, said John Bickett, president of The District of Rock Island. Increasing prices to reflect the tax would most likely mean upping them by a quarter, he noted, and that’s not going to happen. “The businesses themselves are going to shoulder the burden,” he said. “They’re just going to eat it.” The 1-percent tax will likely be included in the cost of a beer or drink, for example, instead of being added to it.

Businesses have already had to deal with other cost increases. Dan Cleaveland, co-owner of the Blue Cat Brew Pub in Rock Island, said his establishment has been hit from two sides: the state and the city. Among other tax, fee, and cost increases, the restaurant’s unemployment insurance is going up and the state’s minimum wage is following suit, on the one hand, and the city increased the cost of its after-hours license and instituted the food-and-beverage tax. “It’s just one thing after another,” Cleaveland said. “We’re going to have to raise prices just to keep up.”

Rick Baker, president and CEO of the Illinois Quad City Chamber of Commerce, said cities need to be “very cautious about passing along costs to the business community.” Baker said he hasn’t gotten complaints from business owners about the Moline and Rock Island taxes, but the issue is something to watch.

Many businesses have already been hit by one or several of the more than 400 fee increases the State of Illinois passed last year, Baker said.

Municipalities need to ensure that businesses remain competitive, he added. “The sales taxes are similar on both sides of the river,” he said, but that could change down the road. That’s certainly a concern, considering that both Rock Island and Moline are projecting significant deficits in coming years. “It’s something we have to be very careful about,” Baker said.

“The city isn’t made up of just restaurants and clubs,” Cleaveland said. “Everyone should feel a little bit of this.”

Rock Island chose the food-and-beverage tax over a sales tax because the city has a small retail base compared to Moline. Phillips said that Rock Island receives only $80 per capita from the local share of sales taxes, while Moline brings in $300 per capita. “We have the people but we don’t have the retail base,” Phillips said.

(The local share of sales tax in Illinois is distributed to the city that generated it, while in Iowa the county’s sales-tax revenues are distributed among its municipalities on a per-capita basis.)

Most of the cities’ budget problems have been caused by state government, Phillips said. Rock Island is getting $1.9 million less in state income, use, sales, and replacement taxes now than it did four years ago. And the state has also passed unfunded mandates, such as fees for the National Pollution Discharge Elimination System. Phillips said the Illinois General Assembly passed the fee program in July, and municipalities got bills in August. Rock Island’s came to $65,000. “No one budgeted for it,” Phillips said.

“We are a target” of the state legislature, he added.

Cities are trying to deal with their budget troubles with a combination of cuts and new revenues. The Moline sales tax is expected to bring in just over half of the city’s anticipated deficit; another $1 million is being made up through cuts. “We didn’t cut anything that affects services,” Carr said.

Rock Island’s new tax represents only a third of its expected deficit. There are $500,000 in new fees being implemented, from building-permit fees to higher fines, and nearly $350,000 in cuts, from a $1,800 employee event to a reduction in downtown tree-trimming.

But the cuts and new taxes are short-term fixes. Both Moline and Rock Island are expecting big deficits in future years.

“Things don’t look very rosy in any of those five [upcoming] years,” Carr said. Moline projects a $2-million deficit going into fiscal 2005, and another $2-million hole beyond that the next year, and so on. Those come exclusively from additional costs associated with contractually or legislatively determined salaries, benefits, and health insurance.

Rock Island is in the process of updating its five-year projections, but Phillips said that “it’s not a pretty sight.” The new figures will be presented to the city council with a budget proposal on February 9.

Unlike Iowa cities, home-rule governments in Illinois don’t have a property-tax cap to contend with. (Davenport cannot raise its tax rate because it’s at the cap, while Bettendorf does have some room.)

Still, both Moline and Rock Island are proud to maintain or lower their property-tax rates. Rock Island Mayor Mark Schwiebert, in his State of the City speech last month, noted, “Despite increasing costs and decreasing federal and state revenues, our city council has committed for the 12th straight year to a slight reduction in our property-tax rate.” The rate dropped from $4.13 per $100 of assessed valuation in 1991 to $2.49 in 2004.

Carr said the Moline City Council is committed to keeping the city’s property-tax rate the same.

And while Moline and Rock Island got by this year without a property-tax increase, that’s probably not going to be a luxury they’ll have for very long. As the deficits mount and there’s less and less fat to cut, higher property taxes might be the only way out of the tough financial times.
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