Lightfoot defends annual increase in property taxes tied to inflation rate

Mayor Lori Lightfoot said Wednesday she’s locking in property tax increases tied to the rate of inflation because her predecessors were so afraid to touch the third rail of Chicago politics, they put it off for decades, forcing massive increases that choked home and business owners.

The inflationary trigger, beginning in 2022, will follow a $94 million property tax increase next year that’s expected to cost the owner of a home valued at $250,000 an extra $56.

It was among the unpleasant surprises Wednesday as Lightfoot’s $12.8 billion “pandemic budget” for 2021 landed like a thud in a nearly empty City Council chambers.

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Chicago aldermen weren’t in their seats to show their discontent at the otherwise-virtual meeting. Who knows how they would have reacted to a budget that rivals former Mayor Rahm Emanuel’s 2015 plan to raise property taxes by $588 million for police and fire pensions and school construction?

Without naming former Mayor Richard M. Daley, Lightfoot pointed to the “lack of political will” that created “a moment of incredible crisis.” Emanuel tried to solve it by doubling Chicago’s property tax levy.

Nearly every other taxing body — including the Chicago Public Schools, the Chicago Park District, City Colleges and Cook County, already have a similar automatic escalator. City sticker fees and water and sewer rates also are tied to inflation.

“To do nothing and then suddenly have this mountain of property tax debt, which has been the history over the last couple of decades, doesn’t help taxpayers. It doesn’t help homeowners. Everybody likes predictability. … This does that in a responsible way,” Lightfoot told the Sun-Times editorial board.

“Every single year, the City Council is gonna have to vote on a budget that includes the CPI. So, there’s no avoiding a vote. They’re gonna be on the record. It’s gonna be transparent. And the voters will take their measure of all of us.”

The mayor’s budget has $185 million in tax increases. Among them:

• The $94 million property tax increase, which will cost the owner of a home valued at $250,000 an extra $56-a-year.

• A 60% increase in Chicago’s nickel-a-gallon tax on gasoline — to eight cents-a-gallon.

• And an increase of 1.75 percentage points — to 9% — in the personal property lease tax applied to “non-possessory computer lease of cloud software and cloud infrastructure.”

The budget pain doesn’t end there.

To chip away at a $1.2 billion budget shortfall, 65% of it triggered by the pandemic, Lightfoot wants to eliminate 1,921 vacancies, 618 of them in the Chicago Police Department.

Together with 350 layoffs — delayed until March 1 to give Congress time to ride to the rescue — and five unpaid furlough days for non-union employees, including the mayor, the personnel cuts are expected to save $106 million. Non-personnel cuts are expected to save $114 million.

Even if the stalemate in Washington is somehow resolved, Lightfoot said she doesn’t expect the feds to dump an “unfettered bucket of money” on the city. There will be strings attached, as there was in Round One.

“Obviously, if we have the ability to blunt the effect of layoffs in this catastrophic economy where so many people are already unemployed, we would certainly consider that as a top priority along with reducing the size of any borrowing,” the mayor said.

The delayed effective date will give Chicago Federation of Labor President Bob Reiter more time to fine-tune what he called “cost savings and efficiencies” that “would at least equal the budgetary impact of workforce cuts, obviating the need for furloughs, layoffs, or vacancy reductions.”

Last year, Lightfoot avoided a property tax increase widely seen as the third rail of Chicago politics, balancing her first budget with one-time revenues.

This year’s version is no different — even with increased taxes on property, gas and computer leases.

To eliminate a combined $2 billion shortfall for this year and next, the mayor plans to refinance $1.7 billion in general obligation and sales tax securitization bonds. By taking advantage of lower interest rates, the mayor hopes to save $448 million this year and $501 million next year.

But it will also saddle another generation of Chicago taxpayers with debt at a time when the city’s existing level of debt is already a major concern to Wall Street rating agencies.

A $304 million tax increment financing surplus will create a $76 million windfall for the city. The budget also includes: $114 million in “non-personnel” savings; $68 million in “enhanced fine enforcement initiatives” and 750 additional parking meters; $59 million by “sweeping aging accounts”; a $30 million raid on the city’s $900 million in reserves and $54 million in savings by transferring the cost of pensions and crossing guards from the city to Chicago Public Schools.

It once again includes $91.3 million for police overtime — even though CPD is once again expected to end the year with more than $140 million in OT spending.

Lightfoot has warned Chicago aldermen to prepare for their toughest budget vote “probably ever” given the size of the shortfall and their shared desire to invest in people and neighborhoods in spite of it.

But the investments she’s making are certain to fall short of their demands.

The mayor’s budget includes $5.25 million in violence prevention funds in addition to last year’s modest $9 million investment; a continued $9.3 million investment in mental health services; the same $10 million to reduce homelessness and $250,000 for “West Side Initiatives.”

Michael Jacobson, president and CEO of the Illinois Hotel & Lodging Association, said a property tax increase that falls most heavily on hotels will make their financial outlook “more daunting” at a time when McCormick Place and many hotels “remain shuttered” and, as he put it, “Our revenue is non-existent.”

Over the years, the City Council’s final budget vote has been a test of the mayor’s political muscle. Emanuel and Daley often won unanimous approval.

Lightfoot has a strained relationship with the Council stemming, in part, from her decision to issue an executive order hours after taking office stripping them of their unbridled control over licensing and permitting in their wards.

The mayor has said she doesn’t care about the margin of victory for her initiatives, so long as she rounds up the 26 votes needed for passage.

The budget she unveiled Wednesday includes so much across-the-board pain, even that minimum standard may be difficult to achieve.

““This budget is tough. It is painful. I’ve lost sleep thinking about the hard choices we have to make. ... I don’t relish raising any taxes. I certainly don’t relish layoffs or furloughs. But we have this really historic challenge,” the mayor said.

“But for COVID this year and next, we would be talking about potential budget surpluses. But COVID had another plan for us. So we have to play with the cards we’ve been dealt. And it’s a really hard hand.”

Reaction to the mayor’s budget address was predictably tepid.

Lincoln Park Ald. Michele Smith (43rd) said she was “very uncomfortable with a lot of things” in the mayor’s budget.

“Everyone knows these are unprecedented times. [But] I made a pledge to my constituents not to vote for property tax increases. I made good on that last year. We really have to keep our city’s tax base within the city’s limits,” Smith said.

“I have a lot of skepticism about how this budget manages to close a $1.2 billion hole. Layoffs were to be expected. Vacancies [being eliminated] were to be expected. All this refinancing, I’m not sure about. The last time the city was in this kind of a jam, we sold the parking meters. I don’t see that kind of recklessness happening here. But, I’m very, very skeptical.”

Ald. Anthony Napolitano (41st) said a property tax increase tied to an automatic escalator would have been a “hard sell” all by itself. But coupled with the mayor’s plan to eliminate 618 police vacancies, Napolitano called it a “punch in the belly” for his far Northwest Side ward, home to scores of Chicago Police officers.

“We’re talking $56 for a home that’s worth $250,000. I would love to have $250,000 homes in our neighborhood. But ours are more in the $400,000, $500,000 and $600,000-range. And if it’s a yearly increase that matches inflation, that changes things a lot, ” Napolitano said.

“I have to sell that to my constituents when we find out that we have no police service up in our part of the city. And now we’re getting rid of 618 vacancies and the rate of police attrition is probably the highest it’s been in 20 years. That just means I’m gonna be giving away more police officers to other parts of the city. It’s a really hard sell.”

Budget Committee Chairman Pat Dowell (3rd) will preside over two weeks of virtual budget hearings, beginning Monday, leading up to a final Council vote on the Tuesday before Thanksgiving. She’s looking at the bright side.

“The property tax increase is certainly a lot smaller than what we passed a few years back under Rahm Emanuel,” Dowell said.

“It seems to me that a CPI increase annually makes more sense than sticking it to the taxpayers in a huge lump sum.”

Dowell is bothered most by the 350 layoffs, and still hopes ongoing negotiations between top mayoral aides and organized labor will produce alternatives.

Ald. Anthony Beale (9th), one of the mayor’s most outspoken City Council critics, accused Lightfoot of “mortgaging the city’s future” by refinancing debt and making Chicago less safe by cutting police vacancies and shortchanging violence prevention.

“Now is not the time to cut back on police when we’re already taking police out of the districts. Our communities will, once again, be left hanging,” Beale said.

Emma Tai, executive director of United Working Families, argued it is “immoral” for the mayor to “lay off any city workers before eliminating all 847 vacancies” at CPD.

It is equally immoral to “raise property and gas taxes on poor people” while continuing to dole out TIF subsidies to luxury office developments, she said.

“City Council has the power to make this right: to defund the police, to protect essential public sector workers, to expand services like mental health, rental relief, and violence prevention, and to tax wealthy corporations,” Tai wrote in an email to her supporters.

Ashlee Rezin Garcia/Sun-Times