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Cannabis, gambling taxes to boost county amid long-term budget woes

Thursday, July 02, 2020
The Daily Line
by Alex Nitkin

Cannabis, gambling taxes to boost county amid long-term budget woes

By

Cook County finance officials don’t expect sales tax revenues to match December 2019 levels until next fall. [Cook County]

A suite of new taxes on pot, sports betting and online retail sales will help Cook County forge a path through its nightmarish two-year budget outlook, officials said Wednesday.

Cook County Chief Financial Ammar Rizki made the case for bright spots in his team’s otherwise bleak financial projections during a meeting of the county’s Independent Revenue Forecasting Commission, a panel of financial experts chartered last year to scrutinize the county’s budgetary math.

A preliminary budget forecast released by county leaders last week showed that they will have to make up about a $280 million gap in the 2020 budget due to the Covid-19 pandemic and ensuing economic slowdown. Absent another federal rescue package, Rizki and Cook County Budget Director Annette Guzman said they expect to face a $410 million shortfall heading into the 2021 fiscal year, representing the largest gap since Cook County Board President Toni Preckwinkle’s first budget in 2011.

Related: ‘Everything is on the table’ as Cook County faces $410M budget gap for 2021: Preckwinkle

Massive drops in revenue from sales, hotel and amusement taxes will only slightly be slightly softened this year by about $2.4 million in cannabis tax revenues, which the county will only begin collecting in September. However, officials expect to reap nearly $14 million from pot sales in 2021, and there remains “a lot of room to grow” in subsequent years as the industry continues to ramp up, Rizki said.

A similar story is expected to play out in the freshly legalized sports betting industry, which got a boost last month when Gov. JB Pritzker and the Illinois Gaming Board opened the door for casinos to begin taking mobile bets. Cook County is projected to collect just $250,000 from taxes on sports betting this year, but that number is expected to jump to nearly $3.6 million in 2021.

Related: Gaming Board awards master sports wagering licenses to 7 casinos

County finance officials expect to see their biggest boost from online retail sales taxes, which were expanded under a new state law signed by Pritzker last fall. The law goes into full effect next January, but Cook County will not reap sales taxes from online retail until April 2021, putting the county in line to receive nearly an extra $54 million in revenue next year.

Rizki said his forecast assumes that state-imposed economic restrictions related to the virus will be fully lifted by May 2021, in time for summer festivals and conventions, which are key revenue drivers for the county. His model assumes amusement taxes on concerts and sports games will return to pre-pandemic earnings by next summer, but hotel stays are projected next year to stay below 2019 levels.

“If we’re still oscillating between phase two and three next summer, we’ve pretty much lost another whole year of amusement tax,” Rizki said. “That’s the dire worst-case scenario.”

County sales tax revenues are not expected to match pre-pandemic levels until September 2021.

Drivers of revenue losses

Most of the county’s deficit this year was driven by a nearly $220 million gap in the combined budget for non-health care related offices. The shortfall will be mitigated slightly by about a 4 percent drop in expenditures resulting from county officials closing their offices, but those savings were overshadowed by a 15 percent drop in revenues below projections that were written into this year’s budget.

Specifically, the county expects to lose out on $110 million in sales tax revenue, or 13 percent of the sum it expected. Forecasters also expect a dramatic 84 percent decline in amusement tax revenue, which the county had expected to tap for about $40 million this year. A roughly $21 million hit is expected to hotel tax collections, representing a loss of about 60 percent of the sum expected.

Rizki and his team project a $222 million deficit in the county’s non-health care budget for 2021, nearly the same as this year’s gap. But the 2021 shortfall will be driven more by a spike in expenditures, rather than lagging revenues, if the federal government does not come through with another aid package. County budget forecasters expect about a $30 million hit to sales tax revenues and $11.5 million in losses to amusement tax collections, plus about an 11 percent decline in fee and fine revenues.

Preckwinkle said she is lobbying the U.S. Senate to a version of the $3 trillion HEROES Act approved by the House of Representatives in May. It would go further than the CARES Act, which was signed into law in March, by sending money to states and cities to make up for lost revenues, instead of only covering pandemic-related expenses.

Related: County governments looking for relief from HEROES Act

“All of us desperately need help with lost revenue, and we’re hopeful some action will be taken this summer,” Preckwinkle said.

Alex Nitkin

Alex Nitkin is The Daily Line’s reporter covering Cook County and Chicago land use policy. He came to TDL from The Real Deal Chicago, where he covered Chicago real estate news. He previously worked at DNAinfo, first as a breaking news reporter, and then as a neighborhood reporter covering the city's Northwest Side. Nitkin graduated from Northwestern University’s Medill School of Journalism with a bachelor’s degree.



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