Rahm’s property tax hike a no-go for downtown alderman

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Downtown Ald. Brendan Reilly (42nd) on Monday declared his opposition to Mayor Rahm Emanuel’s plan for a massive property tax increase to save two of Chicago’s four underfunded city employee pension funds and outlined three alternatives, two of them involving tax increment financing.

“Chicago has been making slow, but steady progress in its economic recovery. I’m concerned that a property tax increase of this size could reverse that progress,” Reilly said, referring to the $750 million that the city stands to collect over a five-year period by raising the city’s levy by $250 million. 

“I’m still waiting to receive data I requested a few weeks ago to better understand the impact on commercial building owners and property owners downtown. Until I’m able to review that data and until we’ve exhausted all of these other alternatives or a blend of them, I don’t even want to talk about a property tax increase. We need to consider a property tax increase as an absolute last resort.”

Instead of saving the Municipal Employees and Laborers Pension funds on the backs of Chicago property owners, Reilly, vice chairman of the City Council’s Budget Committee, zeroed in on Chicago’s 154 tax increment financing districts.

Within TIF districts, property taxes are frozen at existing levels for 23 years, with any “increment” put back into a fund dedicated exclusively for infrastructure improvements and economic development, including developer subsidies.

RELATED: Aldermen search everywhere for alternatives to property tax hike

Last week, Emanuel promised to declare whatever new money is generated by the $250 million property tax increase as a surplus and forward half of it to the Chicago Public Schools, something pushed by Aldermen Will Burns (4th) and Ameya Pawar (47th).

Reilly’s plan would go even further.

It would change Illinois’ TIF statute to dedicate as much as 50 percent of all existing and future TIF funds toward pension liabilities, providing, what he called a “steady revenue stream” to help solve the city’s $20 billion pension crisis.  

Reilly acknowledged the change would require the city to “identify existing TIF commitments to develop a more accurate accounting of undedicated” proceeds. But he argued that “conservative estimates” peg the figure at “hundreds of millions” of dollars.

Reilly’s second idea tied to TIFs would pave the way for Chicago to borrow as much as $2 billion against the future proceeds of TIF districts.

“When a TIF runs out, all of the proceeds are released. This would allow us to issue bonds against future revenue to get a large lump-sum to pay down in a meaningful way the principal on unfunded pension liability. This would become a dedicated revenue source,” Reilly said.

“TIF expiration bonds would allow us to pay down the liability up-front to reduce the need for larger annual payments down the road.”

Reilly’s third and final idea calls for the Illinois General Assembly to increase the “distributive share” of the state income tax increase earmarked for local governments, including Chicago.

By increasing the local share by one-quarter of one percent for each of the next five years, Reilly said the state could generate $750 million to help cities and towns across Illinois solve their pension crises. Roughly 21 percent of that — $157.5 million — would go to Chicago, he said.

Two weeks ago, the Illinois House and Senate approved Emanuel’s plan to increase employee contributions by 29 percent and reduce employee benefits to shore up the Municipal Employees and Laborers Pension funds.

The same-day approval came after Emanuel stripped out any reference to the property tax and shifted the political burden to Chicago aldermen ten months away from re-election.

Gov. Pat Quinn, who had said “no can do” to the property tax hike, has yet to sign the bill.

The Chicago Sun-Times reported last week 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 and going along with Quinn’s plan to make permanent a temporary increase in the state income tax, only if municipal revenue sharing is restored to bring Chicago $150 million-a-year; and a commuter tax on suburbanites who work in the city.

But, Reilly is the first Chicago aldermen to declare his opposition to the property tax increase.

Last year, Reilly marshaled opposition to Emanuel’s plan to settle outstanding claims by Chicago Parking Meters LLC in a way that could relieve taxpayers of a $1 billion burden over the next 71 years for spaces taken out of service, but sweeten the deal by trading a longer parking day for free neighborhood parking on Sundays.

Warning of a “chilling” impact on tourism, Reilly also broke with Emanuel over the mayor’s plan to shift Chicago’s parking tax from a sliding scale to a fixed percentage.

Emanuel has said he’s standing pat with his “balanced, measured and responsible” plan to raise property taxes because Moody’s, the Wall Street rating agency that has dropped Chicago’s bond rating four notches in eight months, is demanding a “reliable” source of revenue.

The mayor has said it’s “not my priority” to go back to the property tax to save police and fire pension fund that are closer to the brink than the Municipal Employees and Laborers pension funds that the bill on Quinn’s desk is designed to save.

Alex Holt, the city’s budget director, said: “Mayor Emanuel is committed to pension security for our employees and retirees.  While none of these ideas are new — and all have been previously reported in the newspaper — we are always open to ideas of sustainable and recurring revenue sources that can secure the retirements of our workers.”

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