Civic Federation: $588M property tax hike won't be enough to shore up finances

The Civic Federation will get behind Mayor Rahm Emanuel’s bad-news $7.8 billion budget on Wednesday with a giant caveat: a $588 million property tax increase for police and fire pensions and school construction is “not enough to stabilize” Chicago’s shaky finances.

Civic Federation President Laurence Msall sounded the alarm in a report prepared for delivery at the annual public hearing on the city budget that will follow Wednesday’s City Council meeting.

The report notes that Emanuel is making three rosy and risky assumptions that, if he’s wrong, would make the financial hit absorbed by Chicago taxpayers infinitely 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 levels 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, the mayor is counting on the Illinois Supreme Court to reverse that decision.

Never mind that the high court has already overturned state pension reforms. Never mind that Circuit 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.

The mayor also is assuming that he will get the green light to complete a three-year phaseout of the city’s 55 percent subsidy for retiree health care and that a court challenge will fall flat.

If that ruling goes against the city, retirees will not only be due a refund for sharply higher health care contributions made over the last two years, but it could “significantly increase retiree health care costs in FY 2016 and beyond,” the Civic Federation report states.

“Mayor Emanuel and his team deserve credit for transparently outlining a plan to address one of the city’s most urgent financial crises,” Msall was quoted as saying in a press release that accompanied the embargoed report.

But at a time when Chicago taxpayers are being asked to absorb the largest property tax increase in recent history, Msall questioned why Emanuel was increasing the city workforce by 431 “full-time equivalent” employees.

“Greater sacrifice will be needed to address the pension funding crises for non-public safety funds, the liquidity crises at the Chicago Public Schools and the city’s ongoing structural deficit. To minimize the demand on taxpayers, we urge the city to consider greater cost savings and efficiencies, especially in public safety operations that have largely avoided budget scrutiny in recent years,” Msall was quoted as saying.

To confront the pension crisis that has saddled Chicago with a junk bond rating and eliminate the structural deficit he inherited, Emanuel’s $712 million package of tax and fee increases includes: a four-year, $588 million property tax increase for police and fire pensions and school construction; a $9.50-a-month garbage collection fee to raise $62 million; $13 million in higher fees for building permits; a $1 million tax on e-cigarettes and $48 million in fees and surcharges on taxicabs and the ride-sharing services that have siphoned business away from them.

The garbage fee has emerged as the biggest point of contention — and Emanuel has said he understands why.

It’s a new fee for a service many homeowners believe “is king of baked in” to the normal property tax bill that would add $114 to the annual cost heaped on 613,000 Chicago owners of single-family homes, two-, three- and four-flats that still get city pickups. Senior citizens would get a 50 percent discount.

On Wednesday, the Civic Federation will endorse the mayor’s call for a garbage collection fee, noting that a similar fee is “already imposed by most other major U.S. cities.”

Msall also will urge the mayor to forge ahead with another idea unpopular with Chicago aldermen: privatizing Chicago’s 311 non-emergency center.

“With proper oversight and safeguards, the Civic Federation supports privatization as an effective means of reducing costs and operational inefficiencies in government,” the federation report states.

Emanuel has argued that the decision to privatize has less to do with the $1 million in annual savings generated by eliminating more than 70 jobs and more to do with capital needs of what was once a ground-breaking 311 system.

“I said that nothing was walled off from reform. I believe privatizing it, bringing in other workers would be the right thing to do. But, more importantly, over the next three years, there’s about $40 million to $50 million in capital investment we have to make to modernize it. Doing it with a private operator is a better way to do it. We don’t have that type of resources, so I’m being upfront about it,” the mayor has said.

“It’s not about the $1 million today or the $1 million tomorrow. It is about the $40 million or $50 million over the next three years that we don’t have, and we’re going to need if we’re going to have a 21st Century 311 system. Given Chicago inaugurated the 311 system, I want to keep it on the cutting edge and a private operator can actually help us do that,” Emanuel added.

The budget also reduces the city’s reliance on “scoop-and-toss” borrowing by $100 million. That’s a costly habit of extending the life of exiting bonds by saddling another generation of Chicago taxpayers with costly debt payments.

On Wednesday, the Civic Federation will urge the City Council to “formally include” the phaseout in Chicago’s debt management policy to make certain it’s “fully implemented and that any deviation from the plan is given proper vetting.”