Naperville’s Financial Advisory Board wants more information before making a recommendation on how the city should replace the $6.5 million it stands to lose in annual revenue when the state’s grocery tax sunsets in eight months.
For the first time since city staff started alerting officials to the local impact of the tax’s repeal nearly a year ago, options for replacing the revenue stream were presented to the board at its quarterly meeting Monday night.
Staff presented two possibilities: adopt a 1% city grocery tax or increase Naperville’s home rule sales tax by 0.25%.
The board backed neither. Rather, by consensus, members sought more information from staff and agreed to continue the discussion at a special meeting tentatively scheduled for next month.
Illinois’ 1% grocery tax applies to food that has not been prepared for immediate consumption, prescription medicines and medicinal appliances, such as wheelchairs or hearing aids, according to the Illinois Department of Revenue. All revenue generated from the tax is returned to municipal governments for local use.
But last May, the General Assembly voted to eliminate the tax. The repeal goes into effect Jan. 1, 2026. To make up for the lost revenue, municipalities were granted the ability to levy their own 1% tax on groceries.
More than 50 communities across the state have already filed to implement a local grocery tax, Nick Krueger, a budget analyst for Naperville, told board members Monday. That includes Oak Lawn and Lake Forest. Tinley Park and Oswego are discussing the possibility.
For Naperville, staff estimate the lost grocery tax dollars could mean a $6.5 million hit to the city’s general fund, which pays for such things as police and fire protection, public works, transportation, engineering and development, according to city budget reports.
Krueger and city Finance Director Raymond Munch warned board members that without an adequate replacement for the statewide tax, the city would have to make cuts, especially to the police, fire and public works departments, which account for the largest share of the general fund. That would likely entail slashing staff and service reductions, they said.
“It’s sometimes simple to sit there and look at a budget and say, ‘Oh well, $2 million dollars, you can find that, right?’” Munch said. “I can absolutely find it. The question is, what’s the impact of that? What are the after-effects?”
And it’s not just the fallout from the eliminated grocery tax that will weigh on budget discussions coming up later this year. Munch also cited the broader uncertain economic conditions and the recent approval of new union contracts for Naperville’s police officers and firefighters, which will add an estimated $7.5 million to the city budget over the next three years.
Adding all the factors together, Munch said he’d “describe it as a dire financial situation.”
“I think that’s why we’re trying to make the point that with this very specific revenue impact (of losing grocery tax revenue), to just address that with expenditure reductions, would be challenging for the community,” he said.
A 1% municipal grocery tax would essentially mirror the state’s current tax. Should Naperville opt instead to up its home rule sales tax by 0.25%, the rate would increase to 1%.
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.
Between the two, Munch said, “If I had my choice, give me no change, right? Keep the status quo.”
Speaking after the meeting, Munch said that “from a city revenue perspective, there’s certainly a greater level of stability (with the grocery tax) than with home rule sales tax.” That’s because home rule sales tax revenue is more subject to change amid economic uncertainty, he said.
“Home rule sales tax is applied to those items that if you’re trying to save money, you could avoid,” he said. “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.”
Naperville City Councilman Josh McBroom, who serves as the council’s liaison to the board, said he’d struggle with putting the onus for making up for lost grocery tax revenue entirely on taxpayers. This could be an opportunity for the city to heighten efficiencies, he said.
“That’s my position, that if we’re going to implement some kind of revenue source, you should be giving the taxpayers something,” he said.
Board chair Edward Harvey responded by saying that implementing a municipal grocery tax would be a continuation of the state’s current policy rather than the institution of a new tax. He said he’d be in favor of identifying a replacement revenue stream, as did member Jeanine O’Meara.
But on the whole, the board sought more clarity from staff about how lost revenue stands to impact each city department and whether there was any room for expenditure reductions before deciding on a replacement stream.
