Chicago phone tax could rise by 28 percent to save pension fund

The monthly tax tacked on to Chicago telephone bills — both cellphones and landlines — would rise by 28.2 percent under an increase quietly approved by the Illinois Legislature to help shore up the Laborers Pension Fund.

Instead of $3.90 a month per phone number, Chicagoans would pay $5 per number. The new revenue is expected to cover increased payments to the smallest of four city employee pension funds “well into the next decade,” City Hall sources said.

The increase flew in under the radar because it was tucked away into a broader telecommunications bill that covers funding for 911 emergency centers across the state. The bill is awaiting Gov. Bruce Rauner’s signature.

Media attention was also focused on the Legislature’s decision to adjourn once again without a state budget, continuing an epic political stalemate that has dragged on for two years.

Not surprisingly, aldermen were blind-sided.

“They did slip this one through in the bottom of the ninth inning — and that’s not the best way to impose additional revenue on people,” said Ald. Brian Hopkins (2nd).

“People get angry when they think there’s any end run to increase taxes when no one is looking,” he said. “This should have been debated. This should have been something people had an opportunity to comment on.”

Hopkins said he was already “seeing an increase in people using addresses where they don’t actually reside” to try to avoid the telephone tax.

“There’s a point of diminishing returns on this. And we may actually be getting there with this increase,” he said.

Ald. Walter Burnett (27th) was equally concerned about an increase he knew nothing about.

“That’s a big increase. That’s gonna be very challenging for a lot of folks. Everybody has a cellphone nowadays. So do a lot of their kids. In today’s atmosphere, you want to make sure you can communicate with your child,” Burnett said.

“People aren’t gonna be happy about it,” he said. “But I don’t know of folks ever being happy with any taxes, any fees or any increases. I don’t know if that was the best choice. But I don’t know what other choices they had.”

In 2014, Chicago aldermen desperate to avoid a pre-election property tax increase advanced an alternative that has ended up costing their constituents even more money: a higher telephone tax.

At the time, the surcharge rose from $2.50 to $3.90, a 56 percent increase. That was $16.80 more per year for every land line and cellphone line in Chicago.

A family of four with four cellphones and a land line ended up paying $84 more each year. Mayor Rahm Emanuel’s original plan to raise property taxes by $250 million over a five-year period to shore up two of Chicago’s four city employee pension funds would have cost less, about $50 a year.

Emanuel had promised then-Gov. Pat Quinn that he would steer clear of the property tax to meet the city’s new statutory obligations to put the Municipal Employees and Laborers pension funds on the road to financial health.

The commitment persuaded Quinn to sign a bill that would save the two funds by increasing employee contributions by 29 percent and reducing employee benefits.

The City Council honored the promise. The fact that the phone tax was regressive did not seem to bother most aldermen at the time.

“We need to look for new revenue sources. It’s a better choice than the property tax at this time,” Ald. Pat Dowell (3rd) said then.

Last year, Emanuel cut a new deal to save the Laborers Pension Fund, the smallest of the four funds, to replace an agreement struck down by the Illinois Supreme Court.

That new deal called for employees hired after Jan. 1 to become eligible for retirement at age 65 in exchange for an 11.5 percent pension contribution. That’s 3 percentage points higher than employees pay now.

Veteran employees hired after Jan. 1, 2011, got to choose between contributing 11.5 percent for the right to retire at 65 or continuing to pay 8.5 percent — but waiting until 67 to retire.

In exchange, Emanuel agreed the revenue from a 56 percent telephone tax hike — initially earmarked to save both pension funds — would all go to the Laborers fund, which has just 8,000 members.

That forced the mayor to slap a 29.5 percent tax on water and sewer bills to save the other fund, the Municipal Employees Pension Fund, which has 71,000 members.

In January, before the new General Assembly was sworn in, Rauner vetoed a companion bill that signs off on employee concessions tied to the deal, as well as the funding schedule for the five-year ramp to actuarially required funding. The same goes for the mayor’s plan to save the Laborers pension fund, bankrolled by the telephone tax.

The newly elected Illinois House and Senate approved the bill again with wide margins. The legislation is now being held in the House before being sent to the governor’s desk.

The question now is whether Rauner will sign the companion bill and the telecommunication package that includes the 28 percent increase in the telephone tax.

In vetoing the employee concessions and slower ramp up, Rauner argued that it would “create another pension-funding cliff that the city does not have the ability to pay.”

The latest bill had no support from House Republicans. House Republican Leader Jim Durkin, R-Western Springs, has said he wouldn’t support the measure without statewide pension reform.

The governor, too, has said he needs wider-reaching government pension reform in order to support the measure. He’s also questioned the use of revenue in the bill, which would resort to the city using property-tax money to fund pensions after it runs out of funds from a new tax on city water and sewer service.