Float
a Tax: Watch it Sink
10
August 2006
by
Mike Kroll
Galesburg City Manager Gary Goddard took his own initiative to
propose a brand new local tax and the tripling of an existing tax at MondayÕs
City Council meeting. First up was a one percent sales tax on prepared food
sold for immediate consumption and alcoholic beverages that would be on top of
the existing 7.5 percent sales tax. By singling out prepared food and booze
Goddard avoided the sales tax moniker and instead labeled this the Prepared food
and liquor tax. City staff estimated that the new tax would generate about
$440,000 per year. The next agenda item was a proposal to triple the current
two percent telecommunications tax on all land-line and cellular phone calls in
Galesburg. Galesburg currently collects approximately $350,000 each year from
local phone users and Goddard expects this to top one million dollars annually
with the new six percent rate. Goddard would like both of these tax changes to
go into effect January 1, 2007. Happy New Year!
A tax by any name is bound to stir up feelings and the food and
beverage tax did just that. There was a line of area businessmen chomping at
the bit to object to this new tax but before they could speak Mayor Gary Smith
recognized John Stout. Stout, who apparently got all his information on the new
tax from an errant Register-Mail article in the Sunday paper. Stout proceeded
to complain that taxing only carryout food would be too complex and griped that
the City Council always makes things too complicated. He suggested that if they
want to impose the new tax that it apply to all prepared food and alcohol
instead of just carry-out. Of course Stout was wrong on both counts. The tax
already applied more broadly and it was Goddard not the City Council initiating
the new tax.
Guy Vitale was the next one to object to the food and liquor tax.
He owns and runs G&M Distributing and provides soft drinks, beer and liquor
to many of the Galesburg establishments who would need to impose the new tax.
Vitale began by saying that taxes such as this Òencourage a negative community
attitudeÓ and then moved to opposing the establishment of such a new tax on Òa
select group of business people.Ó Eventually he got around to saying that Òtoo
many people in Galesburg just canÕt afford more taxesÓ and ended by saying that
such new taxes were Òshort runÓ or Òstop gap measuresÓ to addressing
GalesburgÕs real need for more economic development. ÒThe problem is we donÕt
have enough jobs in Galesburg. The intelligent way to go about this is to work
with private industry to increase the volume of sales rather than raising the
tax rate.Ó
Vitale should know about this, heÕs chairman of the Galesburg
Regional Economic Development Association and GREDA is the group we fund to
accomplish local economic development. Vitale and GREDA basked in one of its
few successes earlier Monday evening as the City Council approved a low
interest revolving loan to Westcode, Inc. who promise to create 25 new
Galesburg jobs when they move their plant to the former Embraco building on
South Henderson Street. Westcode builds air conditioning units for railroad
locomotives and passenger cars.
Next Larry Lieber, owner of the Hungary Hobo sandwich shop on
North Henderson Street complained that taxes are already too high in Galesburg.
He noted that all of his business costs are rising forcing him to hike his menu
prices three percent. Lieber fears that combining higher prices with higher
taxes will drive away business.
The surprise nature of the proposed tax increase is what spurred
Phil Dickinson, owner of the Landmark on Seminary Street to speak in opposition
to the proposed tax. ÒIt was frustrating to read about this tax in the Sunday
newspaper.Ó If Dickinson was surprised he should have talked to some of the
Aldermen. Asked before the meeting where these two taxes originated numerous
city council members told me they only heard about the taxes a day or two
before the agenda was posted to the city website Friday.
Dickinson admitted he doesnÕt know what expenses were supposed to
be covered by the new tax but he was concerned that it was being imposed on
only those who sell prepared food and alcohol. ÒIf we really need the money
then maybe we should talk about an increase in the general sales tax rather
than just on one group of merchants.Ó In the information prepared for the
council Goddard simply said that this money would go into the cityÕs general
fund Òthat provides the majority of city services.Ó In his managerÕs report
Goddard suggested that five percent of the revenues raised from this food and
beverage tax go to the Lodging and Restaurant Association and the Tourism
Council Òin order for them to more fully promote their activities that should
ultimately increase restaurant and beverage sales.Ó
During the public meeting Goddard did not mention any specific
expenditures he would like to cover with this revenue but he did offer me some
specifics during the meeting break. I began by asking if any of this money was
intended for the Railroad Hall of Fame. ÒThe Railroad Hall of fame was part of
my thought process here. If they came back asking for more city funding this
could be one source of that money. But there are many other projects I would
like to see done with the money. We would like to refurbish the Lakeside Tennis
building and turn all of the tennis courts into multi-use courts. That would
make the building much more useful and flexible for recreation purposes. I
really would like to see at least some of this tax devoted to recreation
needs.Ó Goddard is correct when he points out that tight budgets in recent
years have precluded nearly all capital improvement projects and there is no
shortage of worthy projects around town.
The substantial backlash to the proposed tax will probably doom it
at the next City Council meeting but only some of the objections voiced Monday
were really legitimate. Contrary to popular opinion Galesburg is not an
overtaxed town. If anything the City Council and administration have been
guilty of undercharging for things like volume water service, license fees, and
even fees for certain services. Neither the Galesburg sales tax nor property
tax rates are out of line with comparable Illinois communities and both our
infrastructure and quality of life are suffering for lack of funds.
Curiously, the second tax hike garnered absolutely no audience
objection even though it is much more suspect and poses higher costs to
taxpayers, or at least those who do not escape the telecommunications tax
altogether. Goddard wants to triple the current telecommunications tax from two
percent to six percent on all telephone usage in Galesburg. This tax
specifically excludes cable television and cable Internet service despite the
growing popularity of voice over IP telephony products such as Vonage.
Furthermore, the tax only applies to cell phones sold in Galesburg. As more and
more residents give up their residential land-line telephone and can obtain
cell phone service virtually anywhere fewer and fewer of these callers will be
subject to this new tax if they merely sign up for their phone out of town.
Goddard wants to use this additional $700,000 to help fund the
BNSF Fiber Optic project (see sidebar for details). ÒWe have no definitive
costs right now but our consultant has experience doing this an we have estimates
available right now that we believe are high. This project is critical to the
economic future of Galesburg. Some have compared the fiber optic project to
construction of the water pipeline to Oquawka nearly 50 years ago.Ó
Mayor Smith is also totally sold on the BNSF Fiber Optic project.
ÒI canÕt tell you how important this is going to be for the economic future of
our community. We need to attract white-collar jobs and those kinds of jobs
require bandwidth such as this. If we donÕt have this in a few years Galesburg
will be left behind.Ó
A number of city council members were hesitant to approve the tax
at this time because there remain so many unknowns about the costs and
feasibility of the BNSF Fiber Optic project. According to city staff firm
figures on cost wonÕt be available until late October but the city council will
be pushed to vote on this new tax at the August 21 meeting even without
additional information. ThatÕs because Goddard wants the new tax to go into
effect January 1, 2007 and to do so he must inform the State Department of
Revenue by September 20th. Goddard also emphasized that the BNSF plans to go
ahead with their project in 2007 with or without the participation of the
consortium. ÒThe BNSF doesnÕt want to wait on us.Ó
Left unsaid was that delaying a vote until more and better
information is available will merely delay in implementation date of the new
tax rate. The Department of Revenue permits tax rates to change each quarter.
Forcing a vote now amounts to backing council members into a corner to approve
a extremely costly project few understand at a time when the city faces
numerous other pressing capital improvement projects.
If this tax increase is passed it will greatly impact Gallatin
River Communications and its customers. GRC president Fred Miri is disturbed
about both the tax itself and the BNSF Fiber Optic project that he sees as
totally unnecessary.
ÒIÕm trying to understand why Galesburg would want to tax only one
class of customers affecting mainly the customers of the local phone company. I
say this because it seems very discriminatory to tax GRCÕs customers and not
tax GRCÕs competitors. Nationwide Internet phone services already exist and the
local cable company is about to launch an Internet phone service of its own. It
appears that neither will be included in this telecommunications tax. Since the Internet is under the
jurisdiction of the FCC and states and cities donÕt currently have a means to
tax it Gallatin River and its customerÕs will be disproportionately taxed simply
because the city can.Ó
Miri sees this tax situation as unfair to his company and his
customers. ÒA better effort I feel is working to get these Internet phone
companies like Vonage and others to pay equivalent taxes and E-911 fees that
they are now exempt from. Today Galesburg, like many other communities in
Illinois, are not receiving and E-911 fees from these Internet phone companies
even though the Galesburg Fire and police centers take calls from their
customers in Galesburg.Ó
Another issue is that as more and more
residential customers drop traditional land-line telephone service the burden
of such taxes will fall more and more upon business customers that donÕt have
the same options. Ironically, this tax increase that is being sold as an
economic development tool can actually be seen as anti-business. And from
MiriÕs viewpoint taxing his customers to enable the city to go into competition
with his company is certainly not a pro-business position.