Oswego trustees direct staff to draft ordinance to retain 1% grocery tax; debate centers on dedicating revenue to water and sewer fund

The Village of Oswego Committee of the Whole instructed staff to prepare an ordinance to retain a 1% local grocery sales tax after state legislation repeals the statewide tax effective Jan. 1, 2026, and set a goal to consider the ordinance in June or July so the village can meet the Illinois Department of Revenue filing deadline if it chooses to proceed.

The discussion mattered because staff estimated the grocery tax base at roughly $1.0 million to $1.25 million in 2024 (calendar-year receipts in the food category were about $913,000 in 2023), and trustees debated whether the revenue should continue to support the village general fund or be dedicated to the water and sewer capital fund to reduce the scale of upcoming water rate increases.

During the public forum, resident Ed Bradley urged trustees to continue collecting the 1% grocery tax and to dedicate the revenue to the water and sewer capital fund. "I recommend that the Village continue collection of the current 1% grocery tax starting in 2026," Bradley said, adding that he preferred directing the revenue to water and sewer capital rather than placing it in a permanently sequestered investment fund. Bradley noted two water-rate scenarios brought forward by staff and said scenario 2, which factors grocery tax revenue into funding, produced lower annual costs for residents through the planning horizon.

Village staff member Andrea reviewed the statutory and administrative timeline and the fiscal estimates. "Recent legislation repeals the 1% grocery tax as of 01/01/2026. The same legislation allows municipalities to maintain the revenue stream locally by approving an ordinance," Andrea said, and she told trustees an ordinance would need to be filed with the Illinois Department of Revenue no later than Oct. 1 if the village wishes to retain the tax. Andrea presented revenue estimates based on SIC code reports and 2024 sales-tax data and said staff estimated receipts between $1,000,000 and $1,250,000 for 2024.

Trustees parsed several options. Trustee Kurt proposed creating a governmental "permanent fund" that would preserve the grocery tax base and use only interest earnings for water-related relief; staff showed modeling that assumed a $1 million base in 2026 and 5% annual growth and estimated that, at a 3% investment return, roughly $35 million–$38 million in invested principal would be required to generate $1 million a year in interest (an 18–19 year timeline in the model). Several trustees said that approach could create a generational-equity concern because current payers would finance long-term benefits that future residents also would receive.

Other trustees argued keeping the tax and directing it to the water fund would reduce near-term rate increases for residents. Andrea cautioned that some grocery-tax receipts would be used to build required fund balances tied to upcoming debt payments (staff noted obligations including WIFIA payments with material fund-balance requirements in 2031), so the near-term rate impact can be muted until those requirements are met. Andrea contrasted water-rate scenarios that include grocery-tax revenue with ones that do not and said the scenario including the grocery tax produced smaller annual increases over the modeled period.

Trustees also discussed regional context: staff reported Montgomery recently approved a local grocery tax ordinance and Yorkville was considering one; a MetroWest survey showed most responding municipalities planned to keep the tax. Several trustees raised policy objections to reimposing a local grocery levy that had been state-collected for decades, calling it effectively a new local tax even if residents were previously accustomed to the charge at the state level.

On timing and next steps, trustees directed staff to return with an ordinance for consideration in June or July so the village would have time to act before the Oct. 1 Department of Revenue filing deadline if the board decides to retain the 1% locally. No formal ordinance vote occurred at the Committee of the Whole; the record shows board members expressed majority support for bringing an ordinance back for further study and direction, with some members expressly conditioning support on dedicating proceeds to water and sewer.

The village will return to the topic at a future meeting with more detailed fiscal modeling and proposed ordinance language clarifying whether retained receipts would remain in the general fund or be dedicated to a water and sewer capital fund.