City Council increases telephone tax 56 percent

The City Council agreed Wednesday to raise the monthly surcharge tacked on to telephone bills by 56 percent averting the need for a pre-election property tax increase.

While aldermen dodged a political bullet, Chicago taxpayers did not. Effective Sept. 1, the surcharge tacked on to telephone bills will rise by 56 percent — from $2.50 to $3.90. That’s $1.40 more per month, or $16.80 per year, for every land line and cell phone in Chicago.

The tax applied to pre-paid phones will rise from 7 percent to 9 percent, effective Oct. 1. A family of four with four cell phones and a land-line would end up paying $84 in additional taxes each year. That’s $34 per year more than the $50 price tag attached to Mayor Rahm Emanuel’s original plan to shore up two of Chicago’s four city employee pension funds. That plan would have increased property taxes by $250 million over a five-year period.

Emanuel assured 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. In return, Quinn agreed to sign a bill increasing employee contributions by 29 percent and reducing employee benefits to save the two funds.

On Wednesday, the City Council honored the mayor’s promise without a single dissenting vote. That’s how eager aldermen are to avoid a property tax increase — the third rail of Chicago politics — seven months before the election. The new revenue — $10 million this year and $40 million in 2015 — will be used to “fully-fund” Chicago’s 911 emergency center and the Office of Emergency Management and Communications that runs it, thereby freeing up $50 million “to be contributed for the first payment” to reform the Municipal Employees and Laborers pension funds.

The fact that some Chicago families could end up paying more did not seem to bother most aldermen, who believe the higher fee will go down easier in monthly bites.

“It will relieve some of the pressure on the city budget. In light of all of the pressures we have, it is a wise move,” said Ald. Ed Burke (14th).

Emanuel has emphatically denied that the phone tax was part of a political “shell game” to get past the Nov. 4 gubernatorial election and the Feb. 24 city election for mayor and aldermen, then sock it to taxpayers, but Ald. Scott Waguespack (32nd) doesn’t buy it.

“We had this whole property tax issue on the table. Then, I thought I saw somebody [Emanuel] specifically say we’re holding it off for a year. Which means, it’s back on the table after the election,” Waguespack said this week. “So, this is just to me sort of a short-term fix. It doesn’t solve the bigger structural problems we have. And it doesn’t put any other solutions on the table that we’ve had three years of talking about and haven’t proposed anything.”

At a committee hearing earlier this week, Waguespack asked Budget Director Alex Holt whether she had “anything in writing” from the Wall Street rating agency that has dropped the city’s bond rating four notches in eight months on whether Moody’s views the telephone tax as a “long-term or short-term” solution.

“They are agnostic as to whether it’s 911 or property taxes or any one of a number of sources. They want to see the city meet the commitment,” Holt said, but she categorically denied that the telephone tax was a political life raft to float aldermen and the mayor past the election.

“I don’t know that this is an election issue. We’ve always talked about the need to have a ramp up and, each year, we’re going to have a discussion about how to meet payments for the next year. Property taxes are a possibility. But, that will depend on what the City Council and the mayor think is best. There are other revenues that could be on the table,” Holt said, refusing to identify them.

The phone tax provides a one-year escape hatch, but it will produce nowhere near the $750 million in property tax collections over five years that would have been generated by the mayor’s original plan. That’s why Emanuel’s commitment to freeze property taxes lasts for only one year. The mayor has made no promises about the remaining four years of the deal, well aware that Chicago is staring down the barrel of a state-mandated, $600 million payment to save police and fire pension funds with assets to cover just 24 and 30 percent of their respective liabilities.

Now that the full Council has approved the tax, Ald. Leslie Hairston (5th) is demanding a public service campaign to educate Chicagoans. “There is going to be mass confusion about the use of 911. People will mistake it and, unless we do some very out-front public service announcements, it’s going to be harmful to some people,” she warned this week. “Thirty days is not a big turn-around time to try to get information to the citizens to understand what’s going on. And we don’t want someone to think that they cannot make a call to 911 in an emergency because of a surcharge.”