Chicago city officials predicted a big flow of revenue from the nation’s first tax on bottled water, but the take so far has been just a trickle, forcing Mayor Richard M. Daley (D) to order millions of dollars in budget cuts.
The 5 cents a bottle tax took effect in January of this year. City officials projected it would bring in $10.5 million in 2008, but after five months the city had collected barely $2 million. At that rate the tax will bring in well less than half of what the city’s revenue forecasters predicted.
The bottled water tax is one of several that are bringing in less revenue than expected. In June Daley announced $20 million in budget cuts and said more cuts could come.
Local businesspeople and bottled water industry officials predicted all along that the tax revenues would come up short.
“We’re not surprised,” said Tim Bramlet, executive director of the Illinois Beverage Association. “We did anticipate there would be a dropoff in purchases of bottled water in Chicago.”
They did indeed. In an interview for the March 2008 issue of Budget & Tax News, Bramlet said, “Store owners can go to the suburbs and don’t have to put up with this. It’s another burden to collect and pay the tax, not to mention it will discourage sales of bottled water in the city. And that will probably reduce sales of other items that people buy with water. Anyone who lives near the boundary of the city can easily go outside the city and save money.” (See “Nation’s First Bottled Water Tax Hits Chicagoans,” Budget & Tax News, March 1, 2008.)
On January 4 the International Bottled Water Association (IBWA) filed a lawsuit in Cook County Circuit Court to overturn the tax. Other plaintiffs include the Illinois Retail Merchants Association (IRMA), Illinois Food Retailers Association, and American Beverage Association.
At 5 cents a bottle, the tax adds $1.20 to the cost of a case of water, which had averaged about $4 in Chicago.
“When people are used to paying $4 a case and suddenly the price goes to $5.20, they respond,” Bramlet said. “Where they might have bought two cases, now they’ll buy one. Or they’ll buy outside the city. The city ignored this. They just put their head in the sand.”
Officials at the Illinois Retail Merchants Association had likewise predicted Chicago’s bottled water tax would fall short of the city’s revenue projections.
Interviewed for this story, IRMA spokesperson Pete Gill said, “Chicago is not going to receive the revenue they expect [from the bottled water tax]. Stores will sell single bottles of water downtown to people who are thirsty right then, but a lot of people won’t buy their cases of water in the city.
“The highest sales tax in the nation, one of the highest cigarette taxes, the bottled water tax. … They are giving people a shopping cart full of reasons to go elsewhere,” Gill said.
Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.