Mayor Rahm Emanuel will lower the boom on Chicago taxpayers Tuesday — and the multiyear hit will be even harder than anticipated.
To eliminate the city’s structural deficit and confront a $30 billion pension crisis that has saddled Chicago with a junk bond rating, Emanuel will ask the City Council to raise property taxes by $588 million by 2018 for police and fire pensions and school construction and impose a first-ever monthly garbage collection fee of $9.50 per household.
The $588 million increase will cost the owner of a $250,000 home roughly $588 more a year. It will be phased in over a four-year period, under the 2016 budget that Emanuel will unveil to the City Council on Tuesday.
A $318 million increase for police and fire pensions would apply to the 2015 property tax levy payable in 2016, coupled with a $45 million increase for school construction, for a total increase of $363 million.
That will be followed by a $109 million property tax increase for police and fire pensions in the 2016 levy, a $53 million increase in 2017 and $63 million in 2018.
The $9.50-a-month garbage collection fee amounts to a back-door property tax increase that would add $114 to the costs heaped on 613,000 Chicago owners of single-family homes, two-, three- and four-flats that still get city pickups.
Senior citizens would pay half that amount, just as they do now on city stickers, in a break demanded by the City Council’s Black Caucus. The city is assuming that 40,000 seniors will get the garbage discount.
As expected, the new fee would be tacked on to water bills that arrive in mailboxes every other month. If homeowners refuse to pay the garbage fee, city crews would still pick up the trash to avoid exacerbating Chicago’s already serious rodent problem.
The mayor’s budget also includes a new tax on e-cigarettes, a 50-cents–a-ride surcharge on taxis and ride-hailing services, and a 15 percent increase in cab fares and authorization for Uber to make pickups at McCormick Place, O’Hare and Midway Airports in exchange for a $5 surcharge on every pickup and drop-off.
To raise an additional $13 million, Emanuel plans to “modernize” fees the city charges for building permits. The restructuring was proposed by the Chicago Federation of Labor.
The garbage fee has emerged as the biggest point of contention in Emanuel’s 2016 budget — even more so than the 72 percent property tax increase that will be the largest in modern Chicago history.
But the mayor’s budget team argues that suburbanites have been paying a separate and much higher fee for garbage collection for years and so has much of the city. It’s a matter of fairness, they contend.
Berwyn residents pay $25 a month for garbage collection. In the recycling haven of Seattle, the garbage fee is $100 a month.
“Only half the city receives garbage collection from the city. The other half of the city receives garbage collection and they pay for it from private vendors,” said a member of the mayor’s finance team, who asked to remain anonymous.
“Some aldermen have suggested that the entire amount should just simply go on the property tax levy. We’re looking for a way to have everybody participate . . . Putting the $9.50 fee on makes sure that we still have the resources we need, not only to collect garbage, but also to pay for police and pay for fire. If you were to put that full amount onto the levy, you then push that expense onto people who live in buildings that are already paying for garbage collection.”
In a news release distributed to reporters on the eve of the mayor’s budget address, Emanuel claimed to have authorized $170 million in additional “savings and reforms” before hitting a brick wall.
City Hall argued that it is “not possible” to meet the state mandated payment to shore up police and fire pensions without drastic cuts in the “most critical city services” like police, fire and sanitation that would render the city “unlivable” for residents and businesses alike.
“On so many fronts, Chicago has made great progress by challenging the status quo. But, as we continue to grow our economy, create jobs and attract families and business to Chicago, our fiscal challenges are blocking our path to ever greater success,” the mayor was quoted as saying.
“With this budget, we will build on our progress by charting a new course for Chicago’s future and ensure that we are securing the retirements of our police and firefighters in a way that does not hurt those who can least afford it.”
The scary part is that Emanuel isn’t through raising property taxes. He’s also proposed a $170 million to property tax increase for teacher pensions provided teachers accept the equivalent of a 7 percent pay cut and the state agrees to pick up “normal” pension costs.
And even with a 72 percent increase in the city’s property tax levy, Emanuel is making a rosy and risky assumption that, if he’s wrong, would make the financial hit absorbed by Chicago taxpayers significantly worse.
The mayor’s 2016 budget assumes that Gov. Bruce Rauner will sign legislation — approved by the Illinois House and Senate, but not yet on the governor’s desk — giving Chicago 15 more years to ramp up to 90 percent funding level for the police and fire pension funds.
Chicago taxpayers would still be on the hook for $619 million in payments to the two funds next year — more than double the current payment. But that’s still $220 million less than the city would have been forced to pay and an $843 million break over the next five years.
Although a Circuit Court judge has overturned Emanuel’s plan to save the Municipal Employees and Laborers pension funds, Emanuel is also counting on the state Supreme Court to reverse that decision.
Never mind that the high court has already overturned state pension reforms. Never mind that Cook County Court Judge Rita Novak cited the “crystal-clear direction” provided by the Illinois Supreme Court’s reading of the Illinois Constitution: Membership in a government employee pension system “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
If, as expected, the Supreme Court overturns those reforms, the city’s budget picture would get $130 million better in the short-run and hundreds of millions of dollars worse over time.
But a city finance source, who asked to remain anonymous, argued that, if the mayor’s plan is overturned, “We don’t actually have to pay . . . We don’t have that obligation.”
The mayor still hopes to soften the blow of the massive property tax increase by convincing the General Assembly to raise the homeowner exemption and hold harmless owner-occupied homes worth less than $250,000.
House Speaker Michael Madigan (D-Chicago) has scheduled a hearing on that tax break for later this week over Rauner’s objections.
Convinced that Emanuel’s plan is going nowhere in Springfield, the City Council’s Progressive Caucus on Monday proposed a “back-stop” plan to soften the blow of a $588 million property tax increase for low-income homeowners.
The fallback is similar to the widely-ignored, 2010 plan offered by then-Mayor Richard M. Daley. Daley set aside $35 million for rebate checks, but distributed only $2.1 million because most homeowners didn’t bother to apply.
This time, rebate checks of up to $2,000 would be open to homeowners, no matter how much their homes are worth, provided the owners have an adjusted gross income of less than 400 percent of the federal poverty level.
That’s roughly $47,000 a year for a single homeowner, $63,000 for a couple and $97,000 for a family of four. For the owner of a home of $250,000, the rebate check is likely to be $400.
Why ignore the value of the home?
“We may have people who live in a community that is changing rapidly. They may be a senior citizen who bought their home 30, 40 years ago. Now, they’re living off their Social Security check. They’ve living on a fixed income. And suddenly, they find they own a $700,000 home. They can’t face a $1,000-plus property tax increase. That’s going to put a major burden [on them]. That’s why it’s tied to the income,” said rookie Ald. Carlos Ramirez-Rosa (35th).
Homeowners would still have to apply for the checks — and that means homeowners would have to be educated about the rebate program. That kind of marketing is something the Daley administration failed to do, which is why so many homeowners left money on the table.
“When the last one went through in 2010, hardly anybody knew about it. It wasn’t very well publicized. It wasn’t marketed out there. And if you remember, that rebate was actually in the form of a small cash card. It was very difficult to go through the process. And that cash card was also taxed,” said Ald. Scott Waguespack (32nd).
Waguespack said assuming help that will never come from Springfield is not only foolish. It’s disingenuous. It holds out false hope to homeowners who really need the help.
Ramirez-Rosa (35th) couldn’t agree more.
“This is what the working people of the city of Chicago deserve. They deserve to be protected. They’re being nickel-and-dimed every single day,” Ramirez-Rosa said.
At a City Hall news conference on the eve of Emanuel’s budget address, the Progressive Caucus also declared it’s strong opposition to Emanuel’s plan to give Chicago cabdrivers a 15 percent fare increase, but give ride hailing companies the keys to the kingdom — the right to make pickups at McCormick Place, O’Hare and Midway Airports.
“It would do real harm to the thousands of Chicagoans who drive cabs, creating negative ripple effects” all across the city, Ald. Roderick Sawyer (6th) said.
The $712 million package of tax and fee hikes — on top of annual increases in city sticker, water and sewer fees previously approved — are enough to choke a horse. But Emanuel aides argue that it’s the only way to shore up police and fire pensions, eliminate the structural deficit the mayor inherited over the next four years and end what the mayor calls the “gimmicks and shenanigans” that former Mayor Richard M. Daley used to “mask the real cost” of government.
That’s even though the $500 million general obligation bond issue approved Monday by the City Council’s Finance Committee includes $225 million more in so-called “scoop-and-toss” borrowing that will saddle another generation with debt that should be paid off today.
The mayor’s team is under no illusions about the junk bond rating that has already cost Chicago taxpayers tens of millions of dollars in penalties and higher interest rates. It will take years to get rid of it.
“Look, it’s a lot easier and a lot quicker to be downgraded than it is to be upgraded. But we think this budget will set us on a path to improve the credit rating of the city” over time, said a member of the mayor’s finance team, who asked to remain anonymous.