Gov. Pat Quinn on Friday signed legislation authorizing a 56 percent increase in Chicago’s telephone tax that could avert the need for a pre-election property tax hike.Emanuel refused to tip his hand after the governor signed the bill. He would only issued a statement that said, “I appreciate the governor’s signature, which allows the City to more fully fund 911 services and will provide another tool to address our long term fiscal obligations.”
The bill also provides a political out-clause for Quinn.
He could sign a Chicago pension reform bill that increases employee contributions by 29 percent and reduces employee benefits to save the Municipal Employees and Laborers pension funds without setting the stage for a property tax increase.
That’s if Mayor Rahm Emanuel agrees to modify his plan to raise property taxes by $250 million to save the two pension funds by substituting the telephone tax for the first of five, $50 million property tax hikes.
“We need to look at all revenue options in lieu of a property tax increase, including this” telephone tax hike, Ald. Will Burns (4th) said Friday.
Ald. Ameya Pawar (47th) noted that Quinn has until Monday to sign the Chicago pension reform bill, veto the legislation or issue an amendatory veto.
“The governor should sign the pension bill, then we need to weigh both sets of revenue and have a debate about that. But make no mistake. One way or another, we have to raise revenue,” Pawar said.
Last month, a Chicago Sun-Times poll 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.
But Pawar said, “I don’t think either one [including the telephone tax] is particularly easy. But I’m not concerned about what’s easy. I want to do what’s right.”
Ald. Pat O’Connor (40th), the mayor’s City Council floor leader, pointed to a looming, $600 million payment to stabilize police and fire and pension funds.
“Obviously, we’ve got a number of outstanding liabilities. The telephone tax just gives us one more option to begin to address them. But I don’t think any one piece solves the puzzle,” he said.
Emanuel refused to tip his hand after the governor signed the bill. He would only issue a statement that said, “I appreciate the governor’s signature, which allows the City to more fully fund 911 services and will provide another tool to address our long term fiscal obligations.”
Instead of asking the Illinois General Assembly to simply renew a $2.50-a-month surcharge on telephone bills due to expire July 1, cash-strapped Chicago seized the opportunity to get more money — by persuading state lawmakers to raise the cap to “the highest monthly wireline surcharge imposed by any county or municipality” in Illinois.
The highest monthly telephone tax around the state is the $3.90 imposed in Putnam County. That means Chicago would be empowered to match that $3.90—and go higher if any other city or town goes first–if the City Council approves.
The new and higher tax applies to both cell phone bills and wireline phones. The bill also empowers the city to raise the fee imposed on prepaid cell phones from the current “7 percent of the transaction amount” to 9 percent.
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.
Earlier this week, Emanuel was asked whether the 56 percent increase in Chicago’s telephone tax would allow him to reduce the $250 million property tax increase — or put it off.
He never answered the question, calling it “premature.”
The mayor noted that the telephone tax used to build Chicago’s $217 million 911 emergency center was due to expire, blowing “a huge hole” in the city budget. Even at the current tax rate of $2.50 per month, the corporate fund subsidizes the Office of Emergency Management and Communications to the tune of $40 million per year.
“They had to renew it and in renewing it, it’s also an opportunity to be clear that I don’t think we should be subsidizing it from the corporate account. 911, which all of us rely on, plus OEMC and all the services they provide on major events like the winter storm should be self-sufficient and independent,” Emanuel said then.
A team of analysts from Moody’s Investors was more definitive when asked whether the 56 percent telephone tax hike could allow Emanuel to reduce the $250 million property tax increase or put it off until after Feb. 24 election.
“If they raised the tax and it generated more revenue than was needed to actually fund what they’ve earmarked it to fund and they diverted some of that revenue to the pension system, that would be [fine]. It would essentially be more money going to the pension system,” said assistant vice-president and analyst Matthew Butler.
Moody’s Vice-President and Senior Analyst Rachel Cortez added, “However the city chooses to fund its pensions, that’s up to them. They do have a lot of revenue-raising options that other municipalities don’t. A non-home rule municipality in a tax capped county in Illinois cannot raise property taxes beyond a certain point. Chicago can. So, all of the questions about, `What could the mayor and the City Council do,’ it’s kind of, whatever they want to do.”
Chicagoans have been paying the telephone tax since 1990, when then-Mayor Richard M. Daley imposed a $1.25-a-month tax to bankroll a new 911 emergency center.
The tax applied only to land lines until 1997, when it was extended to cellular phone service to take advantage of an exploding market.
Eleven years later, the telephone tax was doubled—to $2.50-a-month—to raise an additional $48 million.
For weeks, there has been rampant speculation that Quinn will 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 that forced Emanuel to strike all references to the property tax increase from the bill to win approval from the Illinois General Assembly and by the frosty relationship the two powerful Democrats have had since Emanuel took office.
It was exacerbated by the fact that Republican gubernatorial candidate Bruce 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.
Quinn did not hold a news conference to herald the signing of the telephone tax hike.
His spokesman Grant Klinzman would say only that the bill “extends the Wireless Emergency Telephone Safety Act” until July 1, 2015.
“This critical extension ensures that emergency 9-1-1 services continue uninterrupted in counties and municipalities throughout Illinois. If the law had expired, funding to local 9-1-1 systems would have ceased in the coming weeks,” Klinzman wrote in an email to the Sun-Times.