Gov. JB Pritzker unexpectedly moved away last week from his
long-standing opposition to taxing services, saying he didn’t want to start
taking ideas off the table as lawmakers search for ways to fund and reform the
Chicago region’s mass transit system. A major business group predictably pushed
back.
As you may know, Chicagoland’s mass transit agencies are facing a
$730 million “fiscal cliff” in 2026. The federal government’s COVID-era
subsidies will expire that year. Also, ridership has declined as service
worsens, operating costs have increased and average fare prices have fallen.
According to a report last year from the Chicago Metropolitan
Agency for Planning (CMAP), imposing a service tax could be part of the
solution. The CMAP report claimed adding a service tax to the state's existing
6.25% state tax rate could generate $1.1 to $1.9 billion in 2026. Some
legislators are proposing a $1.5 billion annual funding increase for transit as
part of a consolidation effort.
So, my associate Isabel Miller (who contributed to this column)
asked Pritzker during an unrelated event if he wanted to take any state taxes
off the table before the talks heat up, including the service tax.
“I have never been in favor of that before,” Pritzker said of the
service tax. He has indeed opposed the tax all the way back to his first 2018
gubernatorial campaign, often calling it regressive.
“There may need to be a source of revenue here,” Pritzker said,
“but that's not something that I have favored in the past.”
As far as specifically ruling out a service tax, however, the
governor said: “I really don't want to start saying, ‘We're not going to do
this, we're not going to do that.’ At this point, there are just so many pieces
of this that we have to look at before we're going to pay for what's necessary
here as we come off of support from the federal government and making sure we're
restoring transit services.”
Some legislative Democrats pushing transit agency consolidation
and reform welcomed the news of the governor’s new openness to a service tax, which
seems to be evidence that the governor is serious about finding a fix.
"I appreciate the governor being open to it, and I appreciate
him recognizing this is a complicated matter," Rep. Eva Dina Delgado, D-Chicago,
told me. Delgado introduced legislation (HB5828) last week to provide the
systems an annual $1.5 billion state appropriation once the mass transit system
is consolidated.
Rep. Kam Buckner, D-Chicago, whose House Bill 5823 would create a
consolidated transit agency, told me he's also opposed a service tax in the
past. But Buckner said he is open to it now and said he appreciates that the
governor is keeping an open mind.
Pritzker also reiterated last week that he's not yet endorsing any
particular mass transit reform proposal, but insisted that "change is
going to have to come."
"We just know that we're going to have to upgrade service, make
sure that we're dealing with the transit funding challenge that's coming
up," Pritzker said. “I hope to see several proposals so that we can
consider what direction to take."
That change in direction will be a complex endeavor, the governor
said.
"We've got to look at cuts that need to be made, along with,
you know, are there changes in fares for certain types of riders that need to
be made," Pritzker said.
A Pritzker spokesperson later explained that when the governor
said “cuts,” he meant efficiencies to save money, like consolidating the
regional transit system, but not service cuts.
Most transit agencies hotly oppose consolidation, including the
Chicago Transit Authority.
A spokesperson for the Illinois Chamber told me the organization hopes
the governor remains ambivalent about a service tax.
"From our position, taxing Illinois' service businesses – especially
our smallest businesses – to close a budget gap is a non-starter. The tax would
negatively impact the smallest of businesses: service-based small businesses
and startups – especially businesses in counties that border other states as
customers can save just by crossing the state line," the Chamber
spokesperson said.
One issue with a service tax is that implementing it would take
time. Many of the businesses that would be covered are not currently set up to
pay sales taxes, for example. The Chamber predicted it could take “several
years” to implement a service tax, so it won’t solve “short-term gaps.”
“As the voice of Illinois business, we would welcome sitting down
with the governor’s team to discuss pragmatic ways to address the budget gap,
but taxing services is not one of them,” the Chamber spokesperson said.
