St. Charles looks to hike alcohol, hotel taxes to prepare for budget shortfalls

Looking years ahead to an anticipated budget shortfall, St. Charles aldermen on Monday supported increasing the taxes placed on alcohol sales and hotel-room rentals in the city.

Growing operating expenses and several planned capital projects will lead to a budget deficit within the next few years if the city doesn't change its revenue structure, Finance Director Chris Minick said. The alcohol and hotel/motel tax hikes, along with a proposed gasoline tax of 2 cents per gallon, would generate an additional $1.38 million per year - enough to close or significantly mitigate that gap, he said.

Several aldermen, including Lora Vitek, said they believe pulling the funds from multiple sources, rather than just one, is a strategic approach. Diversifying the city's revenue sources also could help its bond rating, officials said.

"If we don't do this now, we're putting ourselves at a disadvantage," Vitek said.

Aldermen acting as a government operations committee Monday voted 7-1 in favor of raising the city's alcohol tax rate from 2 percent to 3 percent. The tax is placed on all packaged liquor, as well as alcoholic beverages consumed at restaurants or bars, Minick said.

Proceeds from the alcohol tax, which currently amount to about $1.2 million per year, are used to fund capital projects, debt and operational expenses, Minick said. The tax hike would generate an additional $600,000 annually.

The city also could capture an extra $380,000 per year by increasing its hotel tax by 1 percentage point, Minick said. The proposed tax hike, which aldermen supported in a 7-2 vote, would bring the rate up to 6 percent of 94 percent of gross sales.

The hotel/motel tax currently brings in $1.9 million each year, a portion of which is used to help finance organizations such as the Greater St. Charles Convention and Visitors Bureau and the St. Charles History Museum.

Alderman Steve Gaugel opposed both tax hikes, saying he believes they would make affected businesses less competitive compared to those in other towns. Alderman Art Lemke cast the second "no" vote on the hotel tax increase.

However, Alderman William Turner said the money has to come from somewhere to fund projects such as building a new police station and increasing the recreational opportunities on the Fox River.

"Quite frankly, there's going to be a cost for this," he said, "but overall, it's going to make the city a better place to live."

Rather than placing the burden solely on residents, the alcohol, hotel and proposed gasoline taxes all affect visitors from outside the city, Mayor Ray Rogina said. City officials this fall also are expected to discuss the possibility of raising the property tax levy, which has been frozen at about $12 million for the last nine years.

The gas tax was shot down 4-3 by the government operations committee last month. It will return to the city council for a final vote Aug. 6, along with the alcohol and hotel tax hikes.