The corporate fund is the City’s general operating fund and supports many essential City services and activities, such as police and fire protection, tree trimming, and public health programs. Select the revenue sources from the list below for a more detailed explanation of each revenue source and revenue trends over the last ten years. Click here for the discussion on corporate fund expenditures.
Corporate fund revenues come from the following sources:
• Local tax revenue, which consists of taxes collected by the City, including utility, transaction, transportation, recreation, and business taxes.
• Intergovernmental tax revenue, which consists of the City’s share of the Illinois state sales and use taxes, income tax, and personal property replacement tax.
• Non-tax revenue, which consists of charges for licenses, permits and services; fees and fines; the proceeds from land and material sales and leases; and transfers to the corporate fund from the City’s special revenue and enterprise funds for services provided.
Along with local tax revenue, intergovernmental tax revenue and non-tax revenue, the corporate fund receives revenue from proceeds and transfers in and prior year available resources. Proceeds and transfers in consist of amounts transferred into the corporate fund from outside sources, including proceeds from financing transactions and transfers from the City’s asset lease reserve funds. Prior year available resources consist of available corporate fund balances from prior years’ as a result of savings, sustainable revenue growth, spending controls and other efficiencies.
Local Tax Revenue
Local taxes include taxes on the purchase of utility services, real estate and other transactions, fuel and garage parking, and certain recreation and business activities.
Public Utility Taxes
Public utility taxes consist of taxes on the purchase of telecommunications services, electricity, natural gas, and cable television. Utility tax revenue, namely revenue from electricity taxes and natural gas taxes, are weather dependent and vary annually.
The City’s electricity use tax and electricity infrastructure maintenance fee are charged based on the number of kilowatt hours of electricity used. Revenues from electricity taxes are highly dependent upon weather conditions. Electricity rates, conservation efforts, and technological changes that contribute to energy efficiency also affect the amount of electricity used and thus the revenue generated from these taxes.
The City imposes two natural gas-related taxes. The natural gas occupation tax is an 8.0 percent tax imposed on gross receipts for natural gas and delivery charges. The natural gas use tax is imposed at a rate of 6.3 cents per therm on entities not subject to the natural gas occupation tax. As with electricity taxes, natural gas tax collections are highly dependent upon weather conditions and price. Colder weather increases consumption and associated tax revenues, as natural gas is used to heat homes and buildings. Because the natural gas utility tax rate is a percentage of gross revenues as opposed to a per unit rate, these revenues are more directly impacted by price variations than electricity taxes, which are imposed entirely on a per unit basis.
The cable television franchise fee is a fee imposed on the privilege of operating cable television systems within the City of Chicago. The fee is 5.0 percent on the annual gross revenues. Despite a shrinking customer base and increasing competition from satellite and internet-based TV services, cable customers increasingly opt for promotional packages that help sustain revenues in this area.
Telecommunication taxes are levied at a rate of 7.0 percent on gross charges for telecommunications services provided to or within the City of Chicago. Revenue from telecommunications taxes decreased in recent years due to the ongoing decline in the number of landlines due to more customers opting for internet-based phone services or pre-paid phones – neither of which are subject to the City’s telecommunications tax.
Transaction taxes include real property transfer tax – the transfer of real estate – and personal property lease transaction tax – the lease or rental of personal property and short-term lease of motor vehicles within Chicago. Fluctuations in these revenue sources track closely with the real estate market and the economy as a whole, and have benefited from sustained economic growth.
Real property transfer tax revenue has significantly grown in recent years as the housing market strengthened and commercial real estate activity expanded. Additionally, there were multiple large property transfers that spurred real property transfer tax revenue– the Aon Center and Willis Tower in 2015 and the Chicago Skyway and Millennium Park Garages in 2016. Revenue from real property transfer tax in 2017 will remain strong but is expected to decrease compared to the last two years due to fewer anticipated large transactions.
As with other transaction and consumer-driven tax revenues, collections of personal property lease transaction tax suffered due to the recession’s impact on personal and business consumption, but in recent years revenues have increased with consumer confidence and continued economic growth. Lease tax revenues reached $192.5 million in 2015 following an increase in the tax rate from 8.0 percent to 9.0 percent.
In 2016, the City reduced the lease tax for certain cloud products to ensure the City’s growing technology industry remains competitive nationally. Historically, companies paid tax for leasing software and computers that perform various business functions. As more companies moved to the cloud for these services, compliance with the City’s ordinance declined. Other localities and states with a growing technology sector tax cloud applications at rates ranging from 6.0 to 10.0 percent. As part of the 2016 budget process, the City reduced the rate on non-possessory leases of certain cloud products to 5.25 percent starting on January 1, 2016. This reduction applies to instances where the customer is using such products to work with its own data. The City maintained the 9.0 percent tax rate for traditional database services used for financial and legal research. As part of this change, the City exempted small companies from paying or collecting the lease tax for up to five years after start-up. Lastly, the City incentivized compliance with the lease tax by offering amnesty for companies that owed prior years’ taxes on cloud software and infrastructure services by waiving taxes, penalties, and interest for years prior to 2015 if they came into compliance moving forward.
Due to the one-time amnesty payments in 2016 and greater compliance with the lease tax, the City collected $259.9 million in personal property lease tax revenue. In 2017, the City expects collections to remain relatively flat at approximately at $253.0 million.
Transportation taxes include taxes on vehicle fuel, parking facilities, and hired ground transportation. Transportation tax revenues have grown in recent years due to changes to the ground transportation tax’s application to the rideshare industry along with parking garage tax rate changes.
The City’s 2016 budget included a number of revisions to the ground transportation tax and other fees that impact both the taxi industry and the rideshare industry. The changes for the rideshare industry include:
• A $5.00 per trip surcharge on all rideshare pick-ups and drop-offs at the airports, Navy Pier, and McCormick Place. This per trip surcharge went into effect in November 2015. Prior to November 2015, rideshare companies were not authorized to pick up at Chicago airports, though they were authorized to pick up at Navy Pier and McCormick Place with no surcharge. There was no surcharge associated with drop-offs at any of these locations.
• A $0.40 per trip ground transportation tax for trips that begin or end in Chicago. Prior to January 2016, this tax rate was $0.20 per trip.
• A $0.10 per trip Accessibility Fund payment for trips that begin or end in Chicago. There is no change from previous years.
The changes for the taxi industry include:
• A $98 per month ground transportation tax on medallion licensees. Prior to the 2016 budget, this tax rate was $78 per month.
• A $22 per month Accessibility Fund payment on medallion licensees. Prior to the 2016 budget, this fee was $200 every two years.
The above charts reflect historical revenue collections from ground transportation taxes. The 2014 revenue includes collection from rideshare for the first time as the industry joined the Chicago market. Beginning in 2015, the increase in revenue is due largely to the ground transportation tax surcharges associated with rideshare pick-ups and drop-offs at the airports, Navy Pier and McCormick Place. Additionally, the ground transportation tax breakout chart provides a comparison of estimated ground transportation tax collected from Transportation Network Providers (TNP) compared to estimated ground transportation tax collected from taxi, livery, and other providers since the rideshare industry joined the Chicago market in 2014. Note that the revenue collected for the Accessibility Fund is not included in these figures as this revenue is contained in a separate fund and used solely to support the expansion of wheelchair-accessible vehicles.
Garage parking taxes are levied on parking garage operators. Pursuant to a state law change in 2013, the City changed the tax structure from a tiered flat-rate structure to a percentage-based rate, reducing the effective tax rate for economy parking while increasing the effective rate for premium garages and valet services. Prior to the state law change, the City adjusted the flat-rate charges in 2009 and 2012. Following the change to a percentage-based tax structure in 2013, the City further increased parking garage taxes by 2.0 percent in 2015. The current parking garage tax rate is 22.0 percent on total charges for daily parking during the work week, weekly, and monthly parking and 20.0 percent on total charges for daily parking on the weekends. In 2016, the City made additional adjustments to the parking garage tax to clarify its application for companies that aggregate and sell spaces across the city, including those selling spaces through mobile applications
Vehicle fuel tax revenues fluctuate with the economy and demand for fuel. Revenues from vehicle fuel tax declined slightly over the last decade due to more stringent fuel-economy standards and the prevalence of fuel-efficient vehicles. Vehicle tax revenue is rebounding from an increase in air travel as well as the number of miles driven for business and leisure, which has been helped by low fuel prices.
Recreation taxes include taxes on amusement activities and devices, the mooring of boats, liquor, cigarettes, non-alcoholic beverages, and off-track betting.
The majority of amusement tax revenue is derived from professional sporting events and theater and musical performances in Chicago. Amusement tax revenues vary significantly from year-to-year due to a variety of factors, including consumer sentiment, tourism, and the cost of attending live performances and sporting events. The current amusement tax rate of 5.0 percent is applied to charges to view live theatrical, live musical, or other live cultural performances that take place in a venue with a capacity of more than 750 people; there is no amusement tax for live theatrical, live musical or other live cultural performances in venues with a capacity of 750 people or fewer. For all other types of amusement activities, the tax rate is 9.0 percent.
Year-over-year growth in amusement tax revenue over the past three years, including 2017, is in part driven by post-season play by various Chicago sports teams, the popularity of certain shows and theater performances opening in Chicago, economic factors, rate changes, and phase-outs of certain special exemptions. The phase-out of the partial tax exemption cable television companies received was eliminated in 2014, and 2015 was the first year that special seating areas, such as skyboxes, were taxed at the full rate.
Cigarette tax revenues have been impacted by an overall decline in smoking as well as a decrease in cigarette purchases in Chicago as the tax rate increased in recent years. In 2016, the City started taxing liquid nicotine or “e-cigarettes.” The tax has two parts: a $0.55 per milliliter of e-liquid and a $0.80 per container of e-liquid. A container includes single-use e-cigarettes, replacement cartridges, and bottles of e-liquid. The tax generated $1.04 million in 2016 and is estimated to generate $0.58 million in 2017.
Similar to cigarette tax revenue, liquor tax revenues are also impacted by changes in usage, but unlike the cigarette tax, revenues are not as impacted by the price sensitivity of purchasers after rate increases. Revenue from taxes on the purchase of non-alcoholic beverages includes the tax on bottled water and has remained relatively unchanged over the last decade.
The City’s business tax revenues currently consist of revenue from taxes on hotel accommodations, foreign fire insurance tax, and the new checkout bag tax. Beginning in 2012, overall business tax revenues showed the effect of both the phasing out of the employers’ expense tax and the increase in the hotel accommodations tax rate.
Over the last ten years, the City’s hotel accommodation tax receipts benefited from growth in tourism and business travel, as well as changes to the tax rate and the implementation of a surcharge on vacation rentals and shared housing units. The recession significantly decreased hotel tax revenue as revenue per available room (RevPAR) – a key metric that accounts for both occupancy and room price – dropped precipitously to $109 in 2009 from $144 in 2008.
Since the economic recovery, the City has made a number of adjustments to the hotel tax rate and its application to new industries, significantly growing tax revenue since 2012. The City increased the hotel accommodations tax rate in 2012 from 3.5 percent to 4.5 percent, increasing tax revenue from $60.1 million in 2011 to $85.6 million in 2012. In February 2015, the City required website booking facilitators, also called home sharing facilitators, to collect the hotel accommodations tax on transactions facilitated by their websites. Additionally, starting in July 2016, the City implemented a 4.0 percent surcharge on rental of licensed vacation rentals and home sharing units. The home share surcharge revenue is committed to the City’s homeless services program. The City collected $2.9 million in 2016 – the first full year of collections – and expects to collect $3.5 million in 2017.
Despite a dip in RevPAR from $158 in 2015 to $156 in 2016, the first decline since the recession, hotel accommodation tax revenue is estimated to reach $127.6 million in 2017. This is due to the resolution of a decade-long litigation related to payment of the City’s hotel tax by internet hotel booking websites. In May 2017, the City received a net settlement payment of over $12 million. Without this one-time settlement payment, 2017 hotel tax revenue would be relatively flat compared to 2016.
As part of the 2017 budget, the City passed a $0.07 per bag tax on all disposable bags used in Chicago with $0.05 per bag paid to the City and $0.02 remaining with the retailer. The City budgeted $9.2 million in bag tax revenue in 2017, but due to greater than anticipated consumer behavior changes, the City has revised downward its revenue estimates for the checkout bag tax to $4.6 million. The tax collection began in February 2017, thus currently there is limited information available to estimate future performance.
Intergovernmental Tax Revenue
Intergovernmental tax revenues consist of the City’s sales and use tax, the City’s share of the Illinois state sales and use taxes, income tax, and personal property replacement tax.
Sales and Use Taxes
Sales and use tax revenues (referred to below as “sales tax”) are the largest single revenue source in the City’s corporate fund. The chart below details the sales and use tax rates applied to different items purchased in the City of Chicago. The tax rate charged on an item purchased in Chicago varies by the type of product and type of transaction. Occupation taxes or sales taxes are assessed to the retailer and collected from the purchaser at the point of sale, while use taxes are imposed on the privilege of using certain types of personal property within the City. For example, a vehicle titled in Chicago is subject to the titled personal property use tax, and snow boots purchased in Chicago are subject to the general merchandise sales tax
Sales Tax Rates
|Food, Drug & Medical Devices||General Merchandise||Restaurant1|
|Regional Transportation Authority||1.25%||1.00%||1.00%|
Use Tax Rates
|Food, Drug & Medical Devices||General Merchandise||Titled Personal Property||Non-Titled Personal Property|
|Regional Transportation Authority||1.25%||1.00%||1.00%||1.00%|
The combined sales tax rate for general merchandise in the City of Chicago is 10.25 percent (with the County and the State tax making up 80 percent of the tax rate), and while the total tax rate is applied to purchases in Chicago, the City only receives a portion of the sales and use tax revenue. The City of Chicago receives tax revenue through the Chicago Home Rule Occupation and Use Tax (HROT) and the Municipal Retailer Occupation (MROT).
The City imposes the HROT, as detailed above, at a rate of 1.25 percent on the retail sale of general merchandise, excluding most sales of food and medicine. The HROT also applies to tangible personal property purchased for use in the City from a vendor located outside the City at a rate of 1.25 percent for titled personal property and at a rate of 1.0 percent for non-titled personal property. The MROT is imposed by the State on behalf of municipalities at a rate of 1.25 percent, which is included in the 6.25 percent State rate shown in the chart above. Unlike the HROT, the MROT applies to qualifying food and drug purchases. Additionally, in many instances, when consumers purchase an item online, the MROT rate applies, but the HROT rate is not always applied.
Sales tax revenue has increased significantly since the recession, but in recent years, the HROT revenue has softened. HROT revenue for 2016 was essentially flat at $308.1 million compared to $308.9 million in 2015, while MROT distributions from the State increased to $366.4 million in 2016 from $356.9 million in 2015. This trend is expected to continue in 2017 with HROT revenue dipping to $304.3 million and MROT revenue increasing to $370.4 million. Part of the decrease in 2017 HROT revenue is due to a 2.0 percent administrative charge that will be applied to local sales tax collections administered by the State of Illinois. This administrative charge will first be applied to the July HROT distribution.
The ongoing growth in MROT revenue can be attributed to online retailers who must collect all State sales taxes, including MROT, from customers. However, under State law, these retailers are not required to collect local sales taxes such as the Chicago HROT.
State Income Tax
Income tax revenues are impacted by a combination of factors, including employment levels, wage growth, business profits, federal rules, investment returns, and the timing of state distributions. The City’s income tax revenues can also vary with changes in the State’s personal and corporate income tax rates, which have been adjusted three times by the State of Illinois since their fiscal year 2011.
In 2011, the State increased the personal income tax rate from 3.0 percent to 5.0 percent and the corporate income tax rate from 4.8 percent to 7.0 percent. However, municipalities did not receive a share of this increase because the State, concurrently with increasing tax rates, reduced the percentage of total income tax receipts that flow into the Local Government Distribution Fund (LGDF is the fund from which municipalities are paid their share of State income tax revenue). Distributions to the LGDF were decreased from 10 percent of both personal and corporate income tax revenue to 6.0 percent of personal income tax receipts and 6.86 percent of corporate income tax receipts.
In 2015, the State’s income tax rate increase ended, and the personal income tax rate decreased to 3.75 percent and the corporate income tax rate decreased to 5.25 percent. As part of the sunset provision, distributions to the LGDF increased to 8.0 percent for personal income tax and to 9.14 percent for corporate income tax receipts, instead of the earlier 10 percent share. The sunset of the higher tax rates and changes to LGDF distributions did not happen concurrently. As a result, some 2014 income tax payments (at higher tax rates) received in 2015 were distributed to the LGDF based on a higher distribution rate and subsequently paid to municipalities. The timing of these changes increased income tax distributions to the City in the first two quarters of 2015.
Since then, individual income tax receipts have declined due in part to shifts in the stock market and fewer capital gains, and shrinking corporate income tax receipts. Despite employment and wage gains in 2016 and 2017, income tax revenue has declined relative to the early 2010s, pushing the City’s 2017 year end revenue estimate below budgeted expectations to $250.1 million.
As the City looks towards 2018, it is monitoring income tax changes included in the State’s fiscal year 2018 budget. Beginning in July 2017, the personal income tax rate increases to 4.95 percent and the corporate income tax rate increases to 7.0 percent. The State is adjusting the distribution to the LGDF by decreasing the percentage of income tax revenue distributed to the LGDF to 6.06 percent for individual income tax and 6.85 percent to corporate income tax. The State is taking an additional step and is reducing the amount deposited into the LGDF by another 10.0 percent for their fiscal year 2018. The 10.0 percent decrease to LGDF is to account for a change in how income tax disbursements will be paid to municipalities. Beginning this year, the State will deposit income tax revenue directly into the LGDF instead of the revenue first passing through the State’s general revenue fund with a subsequent transfer to the LGDF. This will result in municipalities receiving two accelerated income tax payments during the State’s fiscal year 2018 for a total of 14 LGDF payments instead of 12.
Personal Property Replacement Tax
The personal property replacement tax (PPRT) is levied on corporations, partnerships, and utility companies and total revenues typically fluctuate with corporate profits. The tax is collected by the State and paid to local governments in order to replace revenues that were lost when the State eliminated the authority of local governments to collect personal property taxes on business entities and individuals.
Of the PPRT revenue provided to local units of government, Chicago receives 11.56 percent. Prior to 2015, a large portion of PPRT revenue was paid directly to pension funds as part of the City’s employer contribution. After satisfying this payment, the remaining balance of PPRT was deposited into the corporate fund. This practice ended in 2014, and since 2015, all PPRT revenues are deposited in the corporate fund, and pension contributions are made directly from the corporate fund and recorded as expenses. This appropriation change more clearly reflects the allocation of pension expenses.
In 2016, the Illinois Department of Revenue (IDOR) notified local taxing districts that IDOR had misclassified $168 million of income tax revenue as PPRT between April 2014 and March 2016. This error resulted in overpayments to local taxing districts such as the City, Chicago Public Schools, and Chicago Park District, among others, and meant that the State’s PPRT distribution estimates were inflated. As a corrective measure, the State advised local taxing districts that it would reduce distributions for the remainder of 2016 to prevent further overpayment until final tax returns are filed in October 2016. IDOR also stated it would begin recouping the $168 million from affected governments over a two year period beginning in January 2017.
Additionally, the State’s fiscal year 2017 stop-gap budget diverted PPRT revenue from municipalities to community colleges throughout Illinois. IDOR subsequently indicated that the diversion would count as an initial step toward the State’s effort to recover its previous overpayments. As a result of these factors, PPRT revenue in 2016 and 2017 show a slight decline from 2015 levels.
Non-tax revenues consist of revenue from:
• Licenses, permits, and certificates, include fees generated for business licenses, building permits, and various other licenses and permits;
• Fines, forfeitures, and penalties include parking tickets, automated enforcement tickets, and fines such as building code violations;
• Fees or charges for services include charges for activities such as inspections, public information requests, and other services for private benefit;
• Leases, rentals, and sales include revenues generated by the lease or sale of City-owned land and property;
• Interest income includes investment returns on the corporate fund;
• Municipal enterprises includes municipal parking revenue from residential parking permit charges;
• Internal service earnings include transfers to the corporate fund for services provided to other City agencies, such as police, fire, and sanitation services;
• Other revenue includes multiple different revenue sources, such as the Build America Bonds (BABs) subsidy, reimbursements, Tax Increment Financing (TIF) surplus, and revenue from sweeping aging revenue accounts.
The following provides a description of certain non-tax revenue and recent trends related to these revenue sources. Overall, non-tax revenue is forecasted to increase in 2017 compared to 2016 due primarily to a larger TIF surplus and sweeping aging revenue accounts.
Most non-tax revenues vary with City operations, such as increased enforcement or availability of City-owned land, but license and permit-related revenue activity often reflects economic health, with more construction projects and businesses starting up when the economy is strong.
Revenue from the lease or sale of City-owned land varies from year-to-year based on the inventory of City property to be leased or sold and the market for such property. To help increase revenue from surplus City personal property, the City implemented an online auction system for the sale of surplus materials and equipment, increasing the efficiency of this sale and disposal process.
The upward trend in fines, forfeitures, and penalties revenue can be attributed, in part, to the increased use of technology to provide easy bill pay options as well as the use of technology to boost parking enforcement efficiency. In 2017, the Department of Finance is employing data analytics in parking enforcement, expanding debt checks to include initial business license applications, and utilizing other enforcement measures to improve compliance and debt collections. While this effort is increasing overall fine collection in 2017, it is offset by a reduction in red light camera revenue from the elimination of six cameras and increasing the grace period before the camera is triggered, which will reduce the number of tickets issued.
Other revenue varies year-to-year, typically with the availability of revenue from aging revenue accounts and the annual tax increment financing (TIF) surplus. The City has a policy of reviewing each TIF annually and declaring available funds as surplus. In 2017, the TIF surplus for the City of Chicago was $40.5 million along with $37 million in sweeps of aging revenue accounts. For more information on TIF surplus, see the TIF section of this report.
In the 2017 budget, the City expected to receive $21.8 million from municipal parking– an increase of $11 million compared to the 2016 budget. This additional revenue was expected to come from the implementation of a pilot converting current business-paid loading zones to commercial user-paid loading zones, and the launch of special event pricing at parking meters surrounding Wrigley Field. Due to the delayed implementation of these municipal parking reforms, the City now expects to receive $7.6 million in revenue from municipal enterprises.
Proceeds and Transfers In
Transfers into the corporate fund from outside sources came largely from investment income on the long-term asset lease reserves. In 2005, the City began to use proceeds from the long-term lease of the Chicago Skyway, and in 2008, proceeds from the long-term lease of the parking meter system, to balance the operating budget. When the recession negatively impacted economically sensitive revenues, the City increasingly used non-recurring revenue sources to fill the annual corporate fund budget gap. Beginning with the 2012 budget, the City has stopped using reserve funds to subsidize the operating budget. Since then, the City made significant progress towards aligning expenses with real revenues and reducing the overall use of proceeds and transfers-in and now only transfers investment income from the long-term asset lease reserves to the corporate fund.
In 2017, the City anticipates transferring as much as $29 million of investment income from the asset lease reserves to the corporate fund.
Prior Year Available Resources
Prior years’ savings and sustainable revenue growth, along with spending controls and other efficiencies, resulted in healthy growth of the corporate fund balance, referred to as prior year available resources. Growth of this funding source is providing $37 million in 2017 funding, or less than 1.0 percent of the overall corporate fund budget. Further, the City allocated $16 million of unspent property tax rebate funds from the 2016 City of Chicago Property Tax Rebate Program to a variety of public safety, educational, and economic development programs or projects in 2017. This appropriation is in addition to the $37 million from the corporate fund balance. For additional discussion on the City’s prior year available resources and the policy around its use, see the fiscal policy section of this report.
An additional 1.0% retailers’ occupation tax on the gross receipts from food prepared for immediate consumption, alcoholic beverages, and soft drinks is imposed on sales within Chicago’s Metropolitan Pier and Exposition Authority (MPEA) boundaries, making the total restaurant tax applied to purchases in MPEA boundaries 11.50%. The MPEA boundaries can be found at http://tax.illinois.gov/Businesses/TaxInformation/Sales/mpea.htm ↩