Ald. Jonathan Nieuwsma (4th) was already considering next year’s city budget about a week into 2025. At a 4th Ward meeting in January, he warned his constituents of potentially challenging 2026 budget discussions.

The second-term councilmember told The Daily that he wanted to inform residents about what could be the “roughest” budget cycle in recent years. A 1% grocery tax, which is set to expire statewide on Jan. 1, 2026, will become a topic of conversation, Nieuwsma said. But he added it is too early to decide how best to make up for the lost revenue.

Evanston collected over $3.5 million in grocery tax revenue in 2023, according to the Illinois Department of Revenue. The city could institute the fee locally without a referendum, but councilmembers and experts differ in opinion on the best course of action. 

If they decline to continue the tax, Nieuwsma said the city could raise property levies, cut programs or charge for services like beach access to make up for lost revenue. He said he wants all options to be on the table when discussions ramp up. 

Ald. Clare Kelly (1st) said she wanted to explore discretionary spending areas that could be reduced before imposing the grocery tax locally. She noted that other municipalities have continued the tax, and she has yet to take an official stance on its continuation. 

Roughly 70% of Illinois voters supported ending the grocery tax, according to 2023 polling by Echelon Insights for the Illinois Policy Institute. The tax is regressive in nature, meaning it burdens low-income taxpayers more than others. Still, as of Jan. 16, 46 towns have passed local grocery taxes, with multiple others still weighing the possibility.

“I’m not sure there would be an appetite on council to pursue that course of action with grocery taxes being perceived as a regressive tax,” Nieuwsma said. “It’s increasingly expensive for families of low-to-moderate income to live in Evanston.”

Nieuwsma noted that the city has not raised the property tax levy since 2021, even though inflation has increased expenses. The city has also raised wages for its employees by drawing on reserves, he said. He warned that if the city continues at its current rate, the reserves would be depleted in two years. 

The council must determine if it can find additional revenue or cut expenses, Nieuwsma added. If they select the latter, he suggested they would have to use an “axe” instead of a “scalpel,” hinting at the possibility of larger cuts.

Nieuwsma said he was concerned about the reserves because the city is “hurtling towards a cliff” and is now applying “the brakes.” He worries that they could be heading towards a substantial property tax increase without consensus on cost-cutting measures. 

“At some point we’re going to have to have a reckoning that either we are going to have to increase property taxes, find some other revenue somewhere or cut programs big time,” Nieuwsma said. 

Kelly, on the other hand, said because the city has “robust cash investments,” she is not concerned about reserves being depleted.

Regarding the city’s services, Nieuwsma said he prefers most of them to be free, but added it is “not unreasonable” to charge for them. He also said the council considered increasing fees for parking revenue, permit fees and business licenses during their 2025 budget discussion, but they did not want to “nickel and dime Evanston residents to death.” 

Kelly said she would generally oppose charging fees for services that are currently free and has requested a 10-year projection on “infrastructure and needed expenditures” to allow her to make more informed decisions. 

“When we look at that (estimate), then we can decide where we’re at in terms of those absolutely needed expenditures that a city has to fund, so we can be a little bit more careful in terms of our spending,” Kelly said.

Nieuwsma said preliminary 2026 budget discussions have already begun, but more robust conversations will likely start in the fall. Kelly said she expects the debate on the grocery tax to arise sooner, perhaps by June. 

Kellogg Prof. Therese McGuire, who is an expert in local public finance, said while many states have removed grocery taxes because of the tax’s regressive nature, she considers it “bad tax policy” because it narrows the tax base. 

McGuire added that removing groceries from the sales tax base is a “blunt instrument” because high-income individuals will effectively receive tax breaks on foods like expensive steak cuts. She also said that some low-income people are already exempt from sales taxes in grocery stores because they use food stamps.

“You’re going to have to make some trade-offs, and you’re going to have to come up with a mix of tax sources and revenue sources that are trying to be as equitable, efficient (and) as simple as we possibly can,” McGuire said.

Juliet Ann Musso, the vice dean for graduate programs at USC’s Sol Price School of Public Policy, said because raising property taxes is politically unpopular, sales taxes are generally becoming larger shares of states’ revenue.

Regarding charging fees for services, Musso said that it also can be challenging to identify offers and collect payments. 

“The problem that cities face is that they just don’t really have any progressive revenue instruments, because the most progressive revenue instrument is an income tax,” Musso said. “And most cities do not collect income tax. It’s typically only imposed at the state or federal level.”

The risk of federal funding cuts also looms. Budget Manager Clayton Black stated that the city learns daily about potential federal funding freezes and lawsuits during an April 8 Finance and Budget Committee meeting. A recession is also a concern, he said.

Kelly said the risk of federal funding cuts “plays heavily” into their budget discussions, emphasizing the importance of caution with expenditures.

“Over the next four years, we’re gonna have to be really extremely careful, and I would say really avoid any unnecessary expenditures at this point,” Kelly said.

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