Could a ramped-up amusement tax kill Chicago music?

September 27, 2011

Most of the attention paid to Chicago Inspector General Joe Ferguson’s recent report on how Chicago might solve its unprecedented budget crisis has focused on dramatic suggestions such as instituting a city income tax like New York, charging tolls for using Lakeshore Drive, starting a London-style “congestion” fee for cars entering the Loop during business hours, and hiking water, sewage, and garbage collection rates.

Needless to say, all of these moves would be politically unpopular. Here’s the Trib analysis, here’s the Sun-Times, and here’s WBEZ.

Buried deep in the report, however, is a suggestion that is much more likely to be adopted by an increasingly desperate mayor and city council, since the only constituency it really hurts—the owners of small independent venues and their music-loving patrons—don’t exactly have their political act together to protect their interests, much less secure a seat at the table in any budget showdown.

Ferguson is suggesting hiking the amusement tax levied on all music and other entertainment events like plays and movies from 5 to 9 percent; eliminating the current exemption for venues under 750 capacity, and dropping the exemption for nonprofit groups. He says that would gain the city more than $100 million in revenue a year.

The latter provision quite sensibly means that Lollapalooza finally would have to pay its fair share (Walmart on the Lake has been dodging its $1 million-plus tax bill by partnering with the nonprofit Parkways Foundation). But then other much more laudable efforts such as benefit concerts or performances also would lose a chunk of the money they raise for good causes to the tax man.

More importantly, suddenly sacrificing 9 percent of an evening’s take at the door could be fatal, given already razor-thin profit margins, to small clubs such as Schubas, Lincoln Hall, the Empty Bottle, the Bottom Lounge, Reggie’s, Pancho’s, the Hideout, Double Door, Subterranean, Martyr’s, the Green Mill, and many, many others. At the very least, to stay in business, venues such as these might have to pass the added cost on to concertgoers—raising the price of a $12 cover to $13.08, or a $15 ticket to 16.35.

It might not sound like a lot on a per-show basis. But it adds up.

The report weighs the pros and cons thusly:

Proponents might argue that the various exemptions in the present amusement tax favor certain amusements over another for no rational reason. Additionally, some of the largest beneficiaries of these exemptions (the Lyric Opera, the Chicago Symphony Orchestra, etc.) serve, on average, patrons that are wealthier than average City residents.

Opponents might argue that there is a good public policy reason for each of these exemptions. Imposing taxes on health and sports clubs would raise the cost of these activities, which would in turn make City residents less likely to visit health and sports clubs, thereby reducing their physical fitness. Others might argue that smaller music clubs and theaters need the tax exemption in order to compete with larger venues and this is why the amusement tax was eliminated for small venues in 1998.

Further, they might argue that live cultural performances add civic value and therefore should receive a tax preference. Lastly, a general increase in the amusement tax will drive up prices meaning people will be more likely to attend events in the suburbs.

Ferguson got the last part right—music lovers will be hit in their wallets—but he doesn’t consider whether or not this might make the difference for some struggling venues to survive at all amid tough competition from other clubs and giant fests such as Lollapalooza, on top of dire economic times that are reducing everyone’s entertainment budgets, and the overall hefty price of just doing business as usual in Chicago.

The report is spot-on, though, in criticizing Lollapalooza’s tax exemption. In fact, it uses language that could well have been taken from many of this blog’s reports on the issue (this one included). To wit:

The City currently imposes a five percent tax on all “live theatrical, live musical or other live cultural performances that take place in any auditorium, theater or other space in the city whose maximum capacity, including all balconies and other sections, is more than 750 persons.”

However, under the Park District’s agreement with the company that produces Lollapalooza, a three-day music festival held in Grant Park that attracted 270,000 attendees in 2011, ticket sales for the festival are not subject to the City’s amusement tax. Instead, the company gives the Parkways Foundation, a foundation that raises private funds for the Park District, 10.25 percent of its profits and pays for any damage the festival causes to Grant Park.

Under this option, the City would impose the amusement tax on all Lollapalooza ticket sales. In 2010, Lollapalooza reported gross ticket sales of $20 million with an attendance of 240,000. Assuming that gross sales grow proportionally with attendees, in 2011, Lollapalooza’s 270,000 attendees accounted for $22.5 million in ticket sales. Assuming ticket sales stay at that level in future years; applying the amusement tax to Lollapalooza would generate $1.1 million annually.

To be certain, the report makes for dry reading, and the budget crisis may not be nearly as much fun for local music lovers to consider as, say, the merits of the new Wilco album. But as the watchman on the Titanic said—entirely too late, as it turned out—“Captain, there’s an iceberg looming dead ahead!” And it’s one from which the Chicago music scene may very much want to steer clear.