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Is a tax on services the future of Illinois? Governor Pritzker is no longer ruling it out.

Gov. JB Pritzker made a surprise move last week from his longstanding opposition to taxing services, saying he doesn't want to start taking ideas off the table as lawmakers look for ways to fund and reform the Chicago region's mass transit system.

As you may know, Chicago area transit agencies face a $730 million “fiscal cliff” in 2026. The federal government's COVID-era subsidies are expiring this year. While ridership has fallen due to service deterioration, operating costs have risen and average fares have fallen.

According to a report last year from the Chicago Metropolitan Agency for Planning, imposing a service tax could be part of the solution. According to the CMAP report, adding a service tax to the state's existing 6.25% tax rate could generate $1.1 billion to $1.9 billion in 2026. Some lawmakers are proposing a $1.5 billion annual increase in transit funding as part of a consolidation effort.

So my staffer Isabel Miller (who contributed to this column) asked Pritzker during an independent media event whether he wanted to take state taxes, including the service tax, off the table before the talks heated up.

“I’ve never been in favor of it,” Pritzker said of the service tax. In fact, he has spoken out against the tax since his first gubernatorial campaign in 2018, often calling it regressive.

“Maybe there needs to be a revenue stream here,” Pritzker said, “but that’s not what I’ve preferred in the past.”

However, on specifically excluding a service tax, the governor said: “I really don't want to say, 'We're not going to do this, we're not going to do that.' There are just so many parts of this at this point that we need to look at before we pay for what's needed here as federal government support is being withdrawn and we're making sure we restore public transit.”

Some legislative Democrats pushing for transit consolidation and reform welcomed news of the governor's new openness to a service tax, which appears to be evidence that the governor is serious about finding a solution.

“I appreciate that the governor is open to this, and I appreciate that he recognizes that this is a complicated issue,” Rep. Eva-Dina Delgado, D-Chicago, told me. Delgado introduced House Bill 5828 last week to provide $1.5 billion in annual state funding to the systems following mass transit consolidation.

Rep. Kam Buckner, D-Chicago, whose House Bill 5823 would create a consolidated transit agency, told me that he has also opposed a service tax in the past. But Buckner said he's open to it now and appreciates the governor's openness.

Local transport needs to change

Pritzker also reiterated last week that he is not yet in favor of any specific public transit reform proposal, but insisted that “change must come.”

“All we know is that we need to improve service and make sure we meet the transit funding challenge ahead,” Pritzker said. “I hope to see several proposals so we can consider which direction to go.”

This change of direction will be a complex undertaking, the governor said.

“We need to look at the necessary cuts and whether there are changes in fares for certain types of riders that need to be made,” Pritzker said.

A Pritzker spokesman later explained that when the governor spoke of “cuts,” he meant efficiencies to save money, such as consolidating the regional transportation system, but not service cuts.

Most transit agencies, including the Chicago Transit Authority, strongly oppose consolidation.

A spokesman for the Illinois Chamber told me the organization hopes the governor remains ambivalent about a service tax.

“In our view, taxing Illinois’ service businesses – especially our smallest businesses – to fill a budget shortfall is a no-brainer. The tax would negatively impact the smallest businesses: service-based small businesses and start-ups – particularly businesses in counties that border other states, as customers can save simply by crossing the state line,” the chamber spokesman said.

One problem with a service tax is that it would take time to implement. For example, many of the covered businesses are not currently set up to pay sales taxes. The chamber predicted that introducing a service tax could take “several years” so it will not fill “short-term gaps”.

“As the voice of business in Illinois, we would welcome sitting down with the governor’s team to discuss pragmatic options to address the budget shortfall, but taxing services is not one of them,” the chamber spokesman said.

Rich Miller also publishes Capitol Fax, a daily political newsletter, and CapitolFax.com.

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