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Lightfoot turns to service tax after Pritzker rules out state takeover of city pension funds

The state can’t take on more financial obligations right now, the governor said, because given Illinois’ current bond rating, there are concerns about driving the state into ‘junk status.’

Mayor Lori Lightfoot joins Gov. J.B. Pritzker on Monday at CTA headquarters.
Mayor Lori Lightfoot joins Gov. J.B. Pritzker on Monday at CTA headquarters for a celebratory news conference on the state’s $45 billion capital plan.
Fran Spielman/Chicago Sun-Times

Mayor Lori Lightfoot said Monday she’s seriously considering asking the Illinois General Assembly to empower the city to broaden its sales-tax umbrella to include high-end professional-service providers like attorneys and accountants after Gov. J.B. Pritzker ruled out a state takeover of city employee pension funds.

“To be clear, the state is at just above junk status in its credit rating. So there are not liabilities that can be adopted by the state that would not drive us into junk status. So, that is not something that we can do,” Pritzker said after a news conference at CTA headquarters highlighting passage of the $45 billion “Rebuild Illinois” capital bill.

“But again, we want to help municipalities in every way we can. And we’re looking at all of the opportunities to do that — like improving investment returns.”

At first, Lightfoot said “a number of different options” were being considered, that she had “no definitive plan” for pension relief, and would make no specific “revenue ask” of the governor until she cuts more costs.

But asked about Pritzker’s apparent decision to slam the door on the idea of a state takeover of the city’s $28 billion pension liability, Lightfoot acknowledged a service tax was probably her next best hope.

“That is an option that we are looking at. And when we have a package of options finalized, we’ll present them to the governor and the senior leadership in the General Assembly,” the mayor said.

“Let me be clear: We’re not looking at a general expansion of the service tax,” Lightfoot said. “We’re not looking at expanding the service tax on mom and pop companies.”

In 2011, Rahm Emanuel campaigned on a promise to extend the sales-tax umbrella to professional services.

Then-mayoral candidate Gery Chico branded it the “Rahm tax,” prompting Emanuel to drop the idea like the hot potato that it was.

One week before her landslide victory over County Board President Toni Preckwinkle, Lightfoot raised the possibility of taxing “high-end” legal and accounting services to generate tens of millions of dollars to satisfy a looming $1 billion spike in pension payments.

“How do we generate revenue that isn’t oppressive to low-wage and middle-wage individuals?” she said then.

“We can’t keep balancing the budget on the backs of low-wage and working-class folks. We’ve got to make sure that people of means absolutely pay their fair share. But we can’t do anything that drives businesses out of the city. So, this has got to be a conversation — not a dictate from on high.”

At the time, Lightfoot estimated that tacking a “small tax” onto invoices sent by “large law firms and big international accounting firms” could generate “tens of millions, if not more every year.” She called it a “very small tax burden to high-end clients without going back to regressive taxes like ticketing and fines.”

She ruled out setting her sights on lower-end services such as hairdressers, nail salons and health club memberships.

On Monday, the mayor reiterated that promise.

“The one thing that I’m very clear about is we are not going to propose any tax that’s gonna be regressive and that’s gonna fall on the backs of those who are least able to manage that burden,” she said. “I don’t want to get into,`Is it gonna include this, this and this,’ because we’re still looking at those at this point.”

After a private meeting with the mayor over the weekend that focused on pensions, Pritzker made it clear that, whatever help he provides to solve Chicago’s pension crisis would be duplicated for similarly struggling municipalities around the state.

“I just came from Rockford this morning. They, too in their police and fire and municipal pension systems are challenged. You’d hear this if you went all across the state. We have 635 Downstate pension systems that are funded roughly between 40 and 45 percent of what they need to be funded,” he said.

The governor hinted strongly at consolidating the administrative functions of Chicago and other local municipal pension funds to boost investment returns.

“Among the Downstate pension systems, because many of them are very small, they’re actually experiencing a much lower rate of return than the benchmark would indicate they should — by 2 percent. Think about how that compounds over years,” he said.

“If they would consolidate simply the investment dollars that they had, let alone other functions or liabilities, the improvement there would have a substantial impact on those pension funds.”