The Civic Federation on Wednesday urged Mayor Rahm Emanuel to devise a short- and long-term plan within weeks to restore Chicago’s bond rating to investment-grade as a double-downgrade to junk status prompted aldermen to consider revenue ideas previously dismissed, including legalizing recreational marijuana and taxing it.
Civic Federation President Laurence Msall said the decision by Moody’s Investors Service to lower the boom on Chicago in response to last week’s Illinois Supreme Court ruling overturning state pension reforms is “significantly different” than any other downgrade.
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“For the first time in city history, it is no longer investment-grade. That carries enormous cost increases. Every debt issuance, including $2.2 billion in variable-rate debt the city has outstanding, will now have to be renegotiated at a significant cost,” Msall said.
“If Springfield and the City Council needed another wake-up call about the seriousness of the city’s financial situation, this should be the last one for them. This is a completely different world the city now finds itself in. Past assumptions of what’s reasonable and affordable now must be recalibrated. There will be difficult decisions that, in the short term, will be painful but, if tied to a reasonable long-term plan, will be essential for saving the city.”
Msall said he is not advocating for an emergency property tax increase just to show the City Council is doing something while awaiting help from Springfield. He argued that “will not be enough” unless it’s “tied to a long-term plan that stabilizes the city’s credit rating.”
“The rating agencies, investors and anyone else concerned about city government is going to require that short-term actions are tied to a long-term strategy for returning the city back to investment-grade. That has to be the goal. The city has to come up with a plan in an expedited way — within the next couple of weeks,” he said.
The Moody’s double-drop leaves Chicago and Detroit as the nation’s only big cities with junk bond ratings. Detroit recently emerged from bankruptcy.
Although Chicago has a far more diverse economy, Msall was asked whether he believes Chicago could be headed toward bankruptcy.
“We’re not headed that way if the city takes appropriate action and gets appropriate assistance from the Legislature. [But] some difficult and politically unattractive decisions and sacrifices will have to be made by every stakeholder in Chicago,” he said.
Chicago aldermen scheduled to be sworn in Monday at the Chicago Theatre said they’re prepared to bite the bullet on a post-election property tax increase that will almost certainly be part of the solution.
Southwest Side Ald. Matt O’Shea (19th) said he’s even willing to consider controversial ideas summarily dismissed before — like video poker, raising the city’s share of the sales tax and legalizing and taxing recreational marijuana.
“It’s a slippery slope. I’d be very concerned about that. It could lead to other problems. But we need to look at that, too. We need to look at things that have never been looked at before. We need to look at things that others have said, `Ugh. We can’t do that.’ Because that’s where we’re at and that’s where we’re headed,” O’Shea said.
During the mayoral campaign, Emanuel ridiculed the idea of legalizing and taxing recreational use of marijuana. But O’Shea noted that the idea has big-money potential and could help solve a criminal justice problem.
“Any relief we can put on the criminal court and continue to move toward arresting the right people, the criminals who are looking to do harm to others, and try to keep some of the more low-level misdemeanor level crimes out of the court system and those people out of the jail” would be welcome, he said.
Downtown Ald. Brendan Reilly (42nd) said Emanuel has “already reached out to aldermen to ask them to start brainstorming and doing their research to bring new ideas to the table” in the wake of the Supreme Court decision.
“We’re gonna have to find a lot of revenue quick, and there aren’t many ways to do that. Everybody here wants to find a blended approach. Placing the entire burden on one revenue stream can cause a lot of pain to a lot of people who can’t afford it,” Reilly said.
Like O’Shea, Reilly is at least willing to consider the idea of legalizing and taxing recreational marijuana.
“We need to keep an open mind because revenue is sorely needed. Everyone here should be open to different ideas from different, non-traditional revenue sources that might be part of the blended mix,” Reilly said.
In an opinion piece this week in the Chicago Sun-Times, Ald. George Cardenas (12th), suggested an annual fee of $200 each on the 600,000 suburbanites who work in Chicago. Emanuel has ruled out a commuter tax that would require legislative approval.
On Wednesday, Cardenas added another idea to the mix. Requiring commercial vehicles licensed to suburban companies that make Chicago deliveries to purchase city vehicle stickers.
“We pay for city services. We pay for the plowing. We pay for all of that. They’re using the streets day in and day out. Yet, they pay nothing into it,” Cardenas said.
Earlier this week, Moody’s dropped Chicago’s bond rating two notches to junk status in response to the Illinois Supreme Court decision that overturned state pension reforms, placed Emanuel’s plan to save two of four city employee pension funds in similar jeopardy and made it far more difficult for the mayor to extract pension reforms from police and fire unions.
On Wednesday, four unions — AFSCME Council 31, the Chicago Teachers Union, the Illinois Nurses Association and Teamsters Local 700 — urged Emanuel in a joint statement to drop the city’s court battle over his plan, given the state Supreme Court decision last week.
“We believe the Supreme Court’s ruling leaves no room for doubt that Chicago’s pension cuts also violate the plain language of the pension clause. In light of that decision and the city’s credit downgrade, we urge Mayor Emanuel to stop wasting time and money in a futile attempt to defend these unconstitutional cuts, and instead work with us to develop fair and constitutional solutions to funding city retirement plans,” the statement reads.
Unless the General Assembly lifts the hammer, Chicago must decide in December how to make a state-mandated, $550 million payment to shore up police and fire pensions.
The double-drop turned up the heat on Emanuel to push through a post-election property tax hike and on the General Assembly to approve a long-sought Chicago casino and to extend the sales tax to professional services.
The mayor has accused Moody’s of “playing politics with Chicago’s financial future by pushing the city to raise taxes without reform” of city pensions.
Ald. Pat Dowell (3rd) tended to agree.
“At some point, we’re gonna have to look at an increase in property taxes. There’s no way around that at some point. But I don’t believe that we should react to what Moody’s is doing. We need to be very deliberate in how we’re approaching that. And there’s ways we need to cut government bureaucracy,” she said.