How Cook County’s Soda Tax Could Swallow Food Stamp Funding

Illinois’ food stamp program is in jeopardy and the state stands to lose some $86.8 million in federal funds on account of how Cook County rolled out its new tax on sugary beverages as it concerns food stamp beneficiaries.

The U.S. Department of Agriculture sent warning to Illinois Department of Human Services Secretary James Dimas in a letter Monday that the tax on sweetened drinks was in violation of federal law.

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The problem is news to Cook County Board President Toni Preckwinkle, whose spokesman, Frank Shuftan, said the feds didn’t directly raise this concern with the county and that it was never Preckwinkle’s intention to put Supplemental Nutrition Assistance Program, or SNAP, funding at risk.

Shuftan says the county believes that it is in compliance with relevant federal rules, but that it nonetheless will “work collaboratively with both the state and USDA to address USDA's concerns” given that the “USDA's powers against the state in this regard are substantial.”

Dimas notified Preckwinkle of the issue in a letter Wednesday that asked for “immediate attention.”

Gov. Bruce Rauner piled on Thursday morning, saying on WVON radio that “if Cook County and Toni Preckwinkle don’t fix this problem quickly, the entire state SNAP program is at risk. We can have all $86 million cut off and our SNAP would end. We cannot have that happen.”

However, the state and county appear to have more than a month to straighten things out before that could potentially occur.

According to a letter from USDA Regional Administrator Tim English, federal law “prohibits state or local sales tax from being collected on food purchased with SNAP (Supplemental Nutrition Assistance Program) benefits.”

The letter suggests that Cook County advised retailers to break the law, by suggesting that shops and restaurants that were unable to have their point-of-sale systems prepared on time—so that SNAP recipients would not be charged the drink tax at the cash register—could temporarily “refund the tax charged on SNAP purchases after collecting it,” say by sending a customer who used SNAP benefits to the customer service desk for a refund.

English says in his letter that the USDA “advised Cook County via phone call on June 28, 2017, that this option for managing the tax was unacceptable.”

However, according to Shuftan, that call actually took place a day prior.

Shuftan says that “our staff recalls” that USDA staff explained the regulation and asked a few questions, but “never said anything” about it being unacceptable.

“Our staff followed up but never heard back,” he said Thursday.

“Merchants had eight months to prepare for this. ... The timeline clearly disputes the suggestion that there was any shortcoming in implementation by the county.”

–Frank Shuftan

Shuftan said the regulation at the heart of the matter was put in place to ward off problems such as this, and in recognition of the fact that sweetened drinks purchased with SNAP benefits should be tax exempt.

“After speaking with USDA on June 27th, the County was not aware that Regulation 2017-3 was unacceptable. We believed that USDA was taking our regulations under consideration and would communicate back with the County if there was a concern,” Shuftan said in an emailed statement. “If we were specifically told that the Regulation 2017-3 was unacceptable, we would have worked with USDA, just as we had been doing since January, to further modify as needed.”

USDA’s Food and Nutrition Service (FNS) gave the state 14 days—until Aug. 21—to come into compliance; if that deadline is missed a formal warning will come, which gives the state and Cook County another 30 days. If the federal government finds that response “inadequate” it “could suspend Federal funding” that supports Illinois’ administrative costs of running SNAP.

It’s the latest point of contention over the tax, which was delayed after a lawsuit from the Illinois Retail Merchants Association. That ongoing legal battle is now in appeals court. Meanwhile, companies including Walgreens, McDonald’s and 7-Eleven are facing lawsuits filed this week by customers alleging they were charged the tax on drinks like sparkling waters that should not have been subject to it.

“Merchants had eight months to prepare for this. The ordinance passed in November, meetings with stakeholders (including IRMA) began in January, rules and regs were posted in March, the tax was to take effect in July and was implemented last week. Repeat: eight months,” Shuftan said in response to questions about the new legal challenges facing retailers. “Any merchant with questions could have, and still can, contact the Department of Revenue for guidance. The timeline I just described clearly disputes the suggestion that there was any shortcoming in implementation by the county.”

An early August phone survey of 1,119 registered voters conducted by We Ask America found that 86 percent disapprove of the tax.

Preckwinkle’s political opponents aren’t allowing the backlash momentum to fizzle. County Commissioner Richard Boykin has begun to float running against her, and Thursday tweeted, “What a disaster. County should halt the tax until retailers know how to implement it legally.” 

Boykin is one of five commissioners signed on as the original co-sponsors of an ordinance filed Wednesday seeking to repeal the penny-an-ounce tax on sodas and other sweetened drinks.

According to the Illinois Department of Human Services, an average of 1.9 million Illinois residents, 837,136 of whom were from Cook County, participated in the SNAP program for the fiscal year that ended in June.

A family (without disabled or elderly family members) must be within 165 percent of the federal poverty limit to qualify; for a family of four that equates to $3,342 a month, according to a table on the IDHS website. 

Rauner told WVON that it’s “another terrible instance. These politicians just keep taxing. They’re putting taxes on the people of Illinois. This terrible sugar tax is outrageous. Toni Preckwinkle should have never done it” and that “the whole system is broken. This is just more of the problems of these politicians thinking taxes are the answer. Taxing and spending is a disaster and the sugar tax has to be fixed.”

The Republican governor had previously flirted with a state soda tax as part of a potential budget compromise, and backed a GOP proposal that relied on a state income tax increase similar to the one that became law in July over his objections. 

Follow Amanda Vinicky on Twitter: @AmandaVinicky 

Related stories:

More Fallout From the Cook County Sweetened Beverage Tax

Aug. 9: Several Cook County commissioners, including one who may be after Board President Toni Preckwinkle’s job, are blasting her handling of the new sweetened beverage tax.

Cook County Drops Suit Seeking $17M in Damages Related to Soda Tax

Aug. 8: Cook County's new tax on sweetened drinks is sticking around, but Board President Toni Preckwinkle is dropping the county’s counter-lawsuit against the retailers who tried to get it tossed.

After Soda Tax Suit, Cook County Seeks Damages of $17M

Aug. 3: A countermove by Cook County in the fight over the controversial beverage tax.

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