Hole in Johnson's budget grows to $340 million thanks to cellphone tax snafu in Springfield

When the City Council unanimously rejected Mayor Brandon Johnson’s proposed $300 million property tax increase, it blew a giant hole in the city’s $17.3 billion budget.

Now, the hole is getting bigger.

A tax on prepaid phones and calling cards the Johnson administration was counting on to raise $40 million has been shot down in Springfield.

Illinois Retail Merchants Association President Rob Karr said there were technical problems that must be fixed in the legal language the city drafted.

The city also had assumed the increased tax (9%, up from 3%) would take effect Jan. 1 — a virtually impossible deadline for retailers.

“This is a complete system change. And you’re asking retailers to re-write their points-of-sale systems … in less than 45 days in the middle of the biggest part of the selling season. We can’t do that,” Karr said Thursday.

Although the higher tax rate would have applied to all pre-paid phone products, the now-failed legislation would have “treated those similarly-situated phone products differently,” Karr said. One category was “tangible personal property” with a sales tax. The other was not tangible and fell under an excise tax.

“They drew this weird dividing line between these two sets of properties. … There were concerns about that. … The city was told to come back down and engage everyone to get it done correctly. They didn’t get it done correctly,” Karr said.

“There was a fix that was available, but we couldn’t implement it by Jan. 1. So we had suggested July 1. The governor’s office and others told the city, 'No, we’re gonna take it back and you can ... get it done correctly in the spring.'"

The mayor’s office had no immediate comment on the cellphone tax snafu.

Ald. Carlos Ramirez-Rosa (35th), Johnson's former City Council floor leader, said the overall cellphone bill passed but it was amended, and "that resulted in the city losing $40 million."

Ramirez-Rosa said he told his local state lawmakers: "We're all desperately trying to work to not have to do a big property tax increase. And this makes it harder." They apologized, he said, and promised to "fix this" sometime next year.

The change only exacerbates the Johnson administration’s dismal track record in Springfield at a time when the Mayor’s Office of Intergovernmental Affairs is shorthanded.

“The city is not meaningfully, nor consistently engaged in Springfield,” Karr said.

Whoever is to blame, the Council has to fill a $340 million gap by Dec. 31 or risk the first shutdown of city government in anyone’s memory.

The yawning budget gap might even rise to $350 million if Ald. Matt O’Shea (19th) and the bar and restaurant owners in his border ward and across the city succeed in burying the mayor’s proposal to raise Chicago’s liquor tax by more than 34 percent.

“I’m very confident — although it’s not official — that we will abandon any discussion of a liquor tax,” O’Shea, the mayor’s hand-picked Aviation Committee chair, told the Sun-Times Thursday.

Stung by last week’s unanimous vote, Johnson already has agreed to cut the property tax increase in half — to $150 million — primarily by raising taxes on cloud computing and streaming services.

Johnson continues to negotiate with alderpersons who are demanding both deeper cuts and an even smaller property tax increase — or none at all.

Both O’Shea and Ald. Andre Vasquez (40th), co-chair of the Progressive Caucus and chair of the Committee on Immigrant and Refugee Rights, agreed an emboldened Council will meet the Dec. 31 deadline, but getting there will be “painful.”

Raising the city’s $9.50-a-month garbage collection fee makes sense. So does restoring the automatic escalator locking in annual property tax increases.

Pandemic relief programs like guaranteed basic income must be on the chopping block. And the sacrifice must be shared by organized labor.

“They are in the room with us helping us … see where we can find middle ground," O'Shea said.

As for unpaid furlough days, which Johnson has resisted, "I don’t think anything should be off the table,” O’Shea said. “Those conversations should have happened back in August. … If they had, we might not be in the situation we’re in.”

Added Vasquez: “These next 10 days … are going to be important to see what we can identify as efficiencies. We can’t go back to our neighbors and say, `We just found new ways to tax you. We didn’t find a way to save money.’ That’s not responsible in any manner.”