Tax Hikes Raise Tensions Over Budget Shortfalls

$754 million. That was the projected short- fall for the City of Chicago’s budget this year.

That shortfall comes as Mayor Rahm Emanuel has already been borrowing at high interest rates to keep the city afloat.

There’s no dispute that rising public pension costs are responsible for most of the city’s spending deficit as they balloon in size, benefits and automatic pay- increases. Chicago’s unfunded pension liability to police, firefighters and teachers has now accumulated to $20 billion, according to Moody’s Investors Service. At that rate, Moody’s announced that the city risks bankruptcy within the next decade as they downgraded Chicago bonds to “junk” status shortly after Illinois circuit court Judge Rita Novak tossed out Emanuel’s latest at- tempt at overhauling the city’s pension system on the grounds that any such changes violate Article XIII, Section 5 of the Illinois Constitution.

As a result, Chicago has a combined debt and pension liability of $26,000 per resident, as calculated by Moody’s. That’s nearly twice as much as Detroit – before that city cut its debt and pension liabilities through bankruptcy in 2014.

“If city officials do not grow revenue or cut spending, net pension contributions are projected to consume 42 percent of operating revenue by 2026,” Moody’s warned. The more tax dollars that have to be used to meet pension obligations, the less the city will have to fund all its other needs.

In the scramble to avoid a default and subsequent bankruptcy, Emanuel and the Chicago City Council have implemented some cuts in spending, such as closing the 50 worst-performing Chicago Public Schools and laying off 1,400 jobs. But as controversial as those cuts were, they haven’t been nearly enough to avoid impending bankruptcy.

So then the conversation pivoted toward more taxes and Chicago aldermen seemed anxious to offer dozens of proposed tax hikes to avoid any further spending reductions.

Among them were a garbage collection tax; an Uber surcharge tax; a commuter tax on those from the suburbs who come to Chicago for work; a bicycle license fee; a congestion fee on vehicles entering the Central Business District during the morning and evening rush periods; a gas tax hike; a sales tax hike; a tobacco tax hike (including on cigars); a city income tax that would apply to all wages earned in Chicago; a “luxury tax” on fur coats, boats, high- end jewelry and other “non-essential items;” a so-called “bad business tax” on companies that fail to pay employees a “living wage;” “dynamic pricing” for parking meters during hours of peak demand; and a “stormwater stress tax” on big-box stores and other businesses that “put pressure on the sewer system.”

This is on top of an “amusement tax” that City Hall already passed this summer levying a 9 percent tax on Chicago residents that subscribe to streaming services like Netflix, Hulu and Spotify.

Then came the biggest property tax hike in Chicago history when City Hall passed a rate increase last October projected to generate $588 million in new property tax revenue – phased in over the next four years. That would amount to an estimated 70 percent increase in the city’s property tax rate.

“If we cut the budget instead of raising taxes,” Emanuel warned while addressing the City Council, “then one out of five police officers would be dismissed. Half the fire stations shuttered. Rats would overrun graffiti-ridden alleys filled with over- flowing dumpsters as the city stopped rodent control and trash got picked up just twice a month. Streets would be riddled with even more potholes and little money to fix them.

“Our city would become unlivable,” Emanuel said. “That would be totally unacceptable.”

Predictably, there were several critics of the move on both sides of the spectrum.

“We [offered other] ways that the city could make big corporations, downtown skyscrapers, pay more in taxes,” progressive caucus member and Chicago Alderman Carlos Ramirez-Rosa (35th Ward) said. “The mayor didn’t include any of that in his budget.”

“Emanuel’s proposal is further proof that Chicago politicians will grasp at anything to make cosmetic changes to the city’s dilapidated fiscal house, rather than do the difficult but necessary work to fix its foundation [through spending re- form],” Vice President of the free market Illinois Policy Institute, Ted Dabrowski, said.

It remains to be seen if the revenue increases City Hall is hoping to collect on these new taxes will delay the grim future Moody’s has predicted for the City of Chicago. But until the General Assembly in Springfield proposes a constitutional amendment to Section 5 of Article XIII or further spending cuts are made at City Hall, the combined debt and pension liability of every Chicagoan will only continue to grow.

And so will the taxing possibilities.

By John Giokaris

Leave a Reply