City eyes tax hike to pay for Rosebud

Samantha Newburn

Another tax could be in store for Effingham residents, as well as visitors, who choose to eat or drink in the city’s bars and restaurants.

Effingham’s Economic Development Consultant Hank Stephens and Tourism Director Kim Jansen said a food-and-beverage tax has been discussed as a way to help fund the city’s possible purchase of the Rosebud Theatre, which will be operated by a nonprofit entity. The .5 percent tax increase would be imposed on items purchased at restaurants and bars, not grocers or convenience stores.

Stephens and Jansen said because restaurants and bars get so much business because of the theater, it makes sense to implement a tax on items sold in these entities that would allow for the continuation of the Rosebud.

According to Stephens, revenue from the tax would likely be put in a separate fund and “used exclusively for the purposes for which it is intended.”

With other projects already slated for use of hotel-motel tax funds, there is not enough remaining in the hotel-motel tax account to sustain payments over 20 years to purchase the Rosebud building. A food-and-beverage tax would generate those extra funds, according to Stephens and Jansen.

One of the proposals to purchase the Rosebud is to use hotel-motel tax funds for that purpose, but the city up to now has been silent about the possible funding package. The city council has discussed the issue in closed session and has heard a proposal from the nonprofit group that wants to operate the theater, but has yet to make a decision on the matter.

If imposed, the .5 percent tax would make a $10 meal at a restaurant cost 5 cents more. Stephens estimates the city could generate about $300,000 extra from the tax.

If the food-and-beverage tax is implemented, Stephens said the city would purchase and keep the Rosebud facility. For the next 20 years, the city would pay $250,000 annually on the bonds for the Rosebud.

However, if the tax is not implemented, the city would make payments on the theater for the next two years for a total of $500,000. As part of the purchase agreement, the city would have the right to give the theater back to the banks after those first two years.

“The banks will be responsible for future payments,” Stephen said.

This scenario gives the city time to implement the food-and-beverage tax, but if it cannot be accomplished in those two years, then the city would give the facility back to the banks, which could then decide to resell the property or become the property owners and continue to allow the nonprofit group to operate the theater.

Stephens said some taxes require a binding referendum and some do not. As of right now, the city of Effingham does not have the authority to impose the tax. However, city officials can go through the Illinois General Assembly and get legislative authorization to implement the tax. The city council would have to approve the tax for it to take effect.

Once the city has authority to implement a food-and-beverage tax, it would use a back-door referendum to put it in place. Thus, the city could implement the tax without a referendum. However, if enough voters sign a petition to put the issue on the ballot, then the city would have to hold a referendum before implementing the tax.

Stephens said it will depend on how the legislation is written as to whether or not the tax will have to be implemented by voters or whether the city council will have the power to impose the tax through a back-door referendum.

“However it is written, the city will be very open and public with the legislation,” Stephens said.

The sales tax on items purchased in the city is currently totals 6.5 percent. Five percent goes to the state, 1 percent goes to the city, .25 percent goes to the county’s General Fund and another .25 goes to the county’s Public Health and Safety Fund. The proposed .5 percent would bring the total sales tax on items purchased at restaurants and bars to 7 percent.

Last month, the city council heard a proposal from Arts Connection of Central Illinois members to buy theater facility for $3.6 million. The nonprofit group would then lease the building for $1 a year, allowing the theater to reduce overhead costs of rent, property taxes and other operational expenses.

The city council is expected to make a decision on the matter either this month or next.

Samantha Newburn may be reached at 217-347-7151 ext. 131 or samantha.newburn@effinghamdailynews.com.

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