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Business & Tech

Sales-Tax Revenues Continue to Erode, Stressing Village Coffers

Despite anecdotal evidence of an uptick, sales taxes remain sensitive to economic cycles and e-commerce.

Like many towns, Downers Grove has felt the pinch in a sector of the economy that is familiar to us all: sales tax receipts. But the current recession aside, a more troubling aspect is the long-term trend.

"Our sales-tax base has been steadily growing smaller," Mayor Ron Sandack said. "The last 20 years we've slowly lost out to other towns."

Sandack went on to note the lack of a significant "big-box" retail presence in Downers Grove, saying "We don't have a Target, a Costco, Wal-Mart, or Meijer."

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Indeed, the Downers Grove's general merchandise market—and the sales tax revenue that comes with it—has been declining for several years.

While sales tax receipts still make up the largest individual share of the village's general fund revenues, they have steadily eroded from a peak of $12.6 million in 2006 to $12.4 million in 2007, $11.2 million in 2008 and $10.3 million in 2009. To put the numbers in perspective, consider that the 1996 sales tax total of slightly over $11 million represented 47 percent of general fund revenues. The $10.3 million collected in 2009 is not only lower in actual dollars, but accounts for only 26 percent of fund revenue.

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Although the village increased its home rule sales tax to one percent in July 2010, only 25 cents of every dollar collected goes into the general fund; the rest is earmarked for various infrastructure needs.

So how did the situation become so dire?

An immediate cause of the downturn in local sales tax is the current economy, particularly in the category of general merchandise, said Greg Bedalov, president of the Downers Grove Economic Development Corp.

The village produces fairly strong sales in food, beverage and electronics, but "during a challenging economy, people are becoming more and more price-conscious," he said.

Automotive sales tax receipts also were lower, but those numbers are probably skewed by the changing fortunes of Luxury Motors, the defunct Ogden Avenue car dealer that once generated hundreds of thousands of dollars in sales taxes receipts for the village before the luxury car market bottomed out.

"Those guys sold a lot of cars," Bedalov said.

But Luxury Motors and the recession aside, other factors are at work, maybe the biggest being the growth of Internet shopping, which Bedalov said is "having a dramatic effect on all municipalities."

The more people shop online, the less sales tax receipts are available to municipalities that still have to staff departments and maintain facilities. So far no one has figured out a way to collect sales tax on Internet transactions; the very nature of e-business, with purchases being made across state lines and sometimes in foreign countries, makes collecting taxes an administrative nightmare.

However, Bedalov maintains that whatever the future of retailing may be, Downers Grove still possesses a distinct advantage: the Ogden Avenue corridor of car dealerships.

"Car dealers like to be located near other dealers," Bedalov said, stressing that 95 percent of automobile purchases are still made at a traditional dealership, where people can kick the tires and take the car of their dreams for a spin. Sitting as it does near I-355 and Route 88, Downers Grove possesses a distinct advantage.

"We're well positioned to attract more car dealers on Ogden Avenue," Bedalov said.

Sandack agreed that car sales could be key to future sales tax receipts, but stressed that other approaches also could prove effective. "We can provide a stable government that is business-friendly," Sandack said.

The general merchandise market was not the only way to increase sales tax receipts, he said, pointing to companies like Dover Corp. and DeVry Inc. as recent success stories that enhance the town's fiscal picture. Their employees "eat lunch and dinner someplace," he said.

But Sandack made it clear that a reconsideration of the village's approach to revenue sources was all but inevitable. The data indicates sales, utility and state income taxes are sensitive to both economic cycles and the emerging online economy. "We need to readjust the mix of revenues," he said, adding that overreliance on the sales tax is, "probably not good planning."

Meanwhile, there is anecdotal evidence that things may be picking up following a three percent decline in sales-tax receipts for the first quarter of 2010.

"We had a decent couple of months in the first quarter," said Alex Shamsuddin, managing partner of the Cellar Door, 5150 Main St. "It wasn't a huge increase, but it was okay."

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