Chicago property owners got a one-year reprieve Monday after Gov. Pat Quinn put aside his political differences with the mayor and signed a Chicago pension reform bill.
The governor asked Mayor Rahm Emanuel to steer clear of a property tax increase and find other revenues to fund the city’s five-year, $250 million pension obligation.
Emanuel obliged — at least temporarily.
In an interview with the Chicago Sun-Times hours after the bill signing, Emanuel said he has “taken property taxes off the table for the first year,” thanks to a telephone tax increase he called “another tool in our tool box that gives us additional ways to address our obligations.”
The mayor said the additional year would “give us the time to identify other types of resources and revenues” to avoid property tax increases in years two through five. But, he made no promises beyond Year One.
“I’m going to ask people to come forward with ideas. That’s the process we’re going to work through. They’ve got to be legal. They have to be sustainable and recurring,” Emanuel said.
But, he added, “I’m against a city income tax. And the commuter tax is illegal.”
Emanuel refused to discuss the possibility of resurrecting an idea he floated during the campaign: broadening the sales tax umbrella to include services, derisively labelled the “Rahm tax.”
Quinn lifted the brick on the pension bill three days after signing legislation authorizing the 56 percent increase in Chicago’s telephone tax.
The phone tax bill gave Quinn political cover.
It freed him to sign the bill that increases employee contributions by 29 percent and reduces employee benefits to save the Municipal Employees and Laborers pension funds without wearing the political jacket for a pre-election property tax increase.
Quinn can now argue that he has given the City Council a less painful alternative to Emanuel’s plan to raise property taxes by $250 million.
In his signing statement, Quinn said he was “dismayed” by the mayor’s “ill-advised attempt” to have the Illinois General Assembly “impose” a property tax on the people of Chicago.
“I publicly stated that this backdoor approach was wrong and I would not approve it,” the governor wrote, noting that the “legislative-mandated” property tax hike was stricken from the bill at his request.
Quinn said he was encouraged by the public support for his position and the “public opposition to automatic reliance” on the property tax to solve Chicago’s formidable financial problems.
“As the mayor and members of the City Council work to identify savings to meet their obligations under the [bill], I urge them to rule out a property tax increase on Chicago homeowners and businesses,” he wrote.
“I recognize that Chicago’s mission to find real solutions to its financial challenges will not be easy. It will require hard work, creative solutions and difficult decisions…..[But], I strongly urge the mayor and City Council to follow our lead and identify a comprehensive, balanced solution to Chicago’s pension crisis. Chicago’s finances can and should be set on the track to long term stability in a way that does not hit homeowners the hardest.”
Emanuel issued his own statement thanking the governor for helping Chicago take another step toward “correcting the financial challenges that have been building” for decades.
In his statement, Emanuel also made an indirect reference to the increase in Chicago’s telephone tax signed by the governor on Friday.
It authorized the City Council to raise — from $2.50 to $3.90 — the monthly surcharge tacked on to cell phone and wireline phone bills and increase the fee imposed on prepaid cell phones from 7 to 9 percent of the transaction amount.
Last year, the city collected $90 million from the surcharge on all three types of phones. At that rate, a 56 percent increase would generate an additional $50.4 million—just enough to let gun-shy aldermen off the hook for the first year of the property tax increase.
Although the telephone tax allowed the governor to claim victory, Republican gubernatorial candidate Bruce Rauner used the bill signing to hammer Quinn.
“I would have vetoed this law — but Pat Quinn likes to raise taxes and left homeowners holding the bag again,” Rauner said. “This should have been a no-brainer — veto the bill, don’t squeeze Chicago families even more.”
Although Quinn urged the mayor to rule out property taxes, the Rauner campaign argued that the governor “broke yet another promise” by signing the Chicago pension bill into law “thereby forcing City Hall to raise property taxes on hardworking Chicagoans.”
Even if the telephone tax is used to avert a property tax increase in Year One, the Rauner statement noted that City Hall “would still face a massive shortfall over the five-year phase-in, paving the way for a massive property tax hike.”
Emanuel was noncommittal about the governor’s demand that Chicago rule out property tax increases beyond the first year.
He’s likely to need the telephone tax, property tax increases and more to save the police, fire, municipal employers, laborers and teachers pension funds in a way needed to restore a Chicago bond rating that dropped four notches in eight months.
“It’s a little hard to be kept in the dark up until the bill is signed and then be told, ‘Oh, by the way, here’s how I think you should meet your obligations,’ “ said Ald. Pat O’Connor (40th), the mayor’s City Council floor leader.
“It took the governor a few weeks to do this. He should give us a while to determine how we plan to meet our obligations.”
O’Connor added, “The mayor has made it pretty clear over the last several months that a property tax was not his first or most desired outcome to fill this hole. And we continue to look because the pension liability is not the only liability the city faces going into this budget year.”
Tim Schneider, Rauner’s handpicked chairman of the Illinois Republican Party, also used the development to hammer Quinn..
“Pat Quinn just signed the hardworking taxpayers up for five straight years of property tax hikes,” Schneider was quoted as saying.
“He said he ‘read the fine print,’ said his ‘conscience’ guided his decision, and then he signed the bill anyway. It shouldn’t surprise anyone: Pat Quinn has spent the last five years putting government first and the taxpayers last in every decision he’s made. Illinois families already struggle with some of the highest property taxes in the country, forcing seniors out of their homes and doing real damage to our business climate. And despite all that, Pat Quinn just put them on the hook for hundreds of millions more.”
The so-called “We Are One Chicago Coalition” comprised of the Chicago Teachers Union and other unions declared its intention to file a lawsuit seeking to overturn the pension reforms.
“Senate Bill 1922 would slash the value of pensions by one-third within twenty years of retirement. It inordinately hurts women, people of color, and low-income workers and retirees, disrupting and harming our city’s communities,” the coalition said in a statement that followed the bill signing.
For weeks, there was rampant speculation that Quinn would either veto the bill outright or issue some kind of amendatory veto by Monday’s deadline.
The speculation was fueled by Quinn’s “no can do” declaration and by the frosty relationship the two powerful Democrats have had since Emanuel took office.
It was exacerbated by the fact that Rauner has urged Quinn to veto the bill while the Rauner campaign makes robo-calls urging Chicago voters to turn up the heat on Quinn.
But, the telephone tax gave Quinn the escape hatch he was looking for.
The bill he signed Monday calls for city employees who are part of the Municipal Employees and Laborers pension funds to see their annual pension contributions rise by one-half of 1 percent over the five-year period beginning in 2015.
Those employees currently contribute 8.5 percent of their annual paychecks to their pensions and are not eligible for Social Security. By 2019, they would contribute 11 percent.
That’s not the only sacrifice they will be required to make. They will also be asked to forfeit compounded cost-of-living adjustments that have been a driving force behind the city’s pension crisis.
Instead of getting annual, 3 percent cost-of-living increases compounded every year, they will get a simple, 3 percent increase or 50 percent of the consumer price index, whichever is less based on their first retirement check.
And they will get no increase in retirement benefits at all in 2017, 2019 and 2025. In addition, employees will be required to wait two years after retirement before becoming eligible for cost-of-living increases. That’s twice as long as they are required to wait today. Retirees whose annual pension checks total $22,000 or less would be guaranteed at least one percent more each year.
To maintain union support even after the property-tax guarantee was dropped, the bill allows union leaders to sue the city and allows the state to withhold funding from Chicago if the city fails to make its required pension payments.
But, there’s a cap on that penalty. It’s one-third of state grants in 2016, two-thirds in 2017 and all grants in 2018 and beyond.
Last month, aldermen told the Chicago Sun-Times that Emanuel’s sagging popularity — and the public’s disdain for hiking property taxes — will make it infinitely more difficult for the mayor to win City Council approval of Emanuel’s plan to raise the city’s property tax levy by $50 million in each of the next five years and overall property tax collections by $750 million over the same period.
They pointed to results of the Sun-Times poll showing only 29 percent of those surveyed would support Emanuel if the election were held today.
The poll also gave registered voters surveyed four options for solving the city’s $20 billion pension crisis. Raising property taxes was the least popular, with only one percent support. That’s why they call it the third-rail of Chicago politics.
The telephone tax was not one of the four options surveyed. But, it’s widely viewed as a less politically easier vote for aldermen facing re-election challenges. That’s even though Chicagoans with both cell phones and wirelines would be hit twice — maybe even three or four times if their spouses and children have cell phones.
The Chicago Sun-Times has reported in recent months that Emanuel’s plan to raise property taxes by $250 million — and a looming, $600 million payment to stabilize police and fire pension funds — has aldermen looking under every rock for alternative sources of revenue.
They include: a London-style congestion fee on motorists who drive downtown during weekday business hours; a new and lower sales tax on high-end professional services performed in Chicago, a commuter tax on suburbanites who work in the city, a city income tax and a commercial lease tax like the one championed by then-Mayor Harold Washington during the mid-1980’s.
Emanuel has ruled out a city income tax increase, and a commercial lease tax. He has also ridiculed a plan championed by downtown Ald. Brendan Reilly (42nd) to dedicate up to 50 percent of all existing and future TIF funds toward pension liabilities and borrow up to $2 billion against future proceeds of TIF districts.
The mayor shot down the idea of issuing TIF expiration bonds after announcing plans to use $60 million in TIF money to build a new selective enrollment high school.
“Would you like me to borrow [from] the TIF for the pension or the school? We have TIF dollars that built the Back-of-the-Yards school. We still have to pay that off. … You have Coonley being built. You have a list of schools across the city of Chicago that use TIF dollars that are going to our future,” the mayor said on that day.