With an assist from labor, Mayor Rahm Emanuel on Thursday began the formidable task of selling his new utility tax to save the city’s largest pension fund by ruling out compromise and blaming that intransigence on Wall Street rating agencies.
Emanuel said the rating agencies are demanding a single, reliable source of revenue to raise the $250 million needed to put the Municipal Employees pension fund on solid footing and it has to be a tax the City Council can enact without having to rely on the Illinois General Assembly.
One by one, the mayor discussed and dismissed the limited options at his disposal.
He ruled out yet another property tax increase because he has already raised property taxes by $588 million for police and fire pensions and school construction and promised another $250 million hike for teacher pensions.
Ditto for the sales tax because County Board President Toni Preckwinkle beat the city to the punch.
“We have the highest sales tax in the United States of America. I don’t think raising the sales tax higher than it is [at 10.25 percent] is the right way” to go, Emanuel said.
For the first time, the mayor did not dismiss outright the idea of imposing a financial transaction tax on LaSalle Street exchanges. That’s a tax championed by vanquished mayoral challenger Jesus “Chuy” Garcia and the Chicago Teachers Union that bankrolled Garcia’s campaign.
But Emanuel argued that such a tax would need approval in Springfield and the rating agencies won’t wait around for that to happen. Same story with a so-called “commuter tax” on suburbanites who work in the city.
The mayor said he also considered and rejected the idea of reducing “basic neighborhood services” that might undermine the quality of life for Chicagoans.
“Garbage [collection] going from once-a-week to every other week. Graffiti removal that we have caught up to and now have within 3 or 4 days. That would blow out like it was when I got here in 2011. Tree trimming. I reject any cuts to neighborhood services because we spent five years systematically increasing our investments,” Emanuel said.
“I went through taking property taxes off the table. Taking neighborhood basic services off the table. Not allowing Springfield to be the determiner because the rating agencies won’t give you that time and I’m not sure, even if they gave you the [time] that the governor will ever agree to it. [So], this is the fairest way to get it done.”
Emanuel said he’s not minimizing the heavy burden he’s imposing on Chicago homeowners reeling from rising property taxes compounded by reassessment by phasing in, what mayoral aides now acknowledged is a 30 percent tax on water and sewer bills over the next four years.
But the revenue source that saves the largest of Chicago’s four pension funds had to be different than the other three to keep the economic momentum going.
“If you … try to make up for 40 years of sins in one year, you’ll mess it [up]. If you put your thumb on the scale too hard on one thing, you’ll tip it. So, you’ve got to find a balance that addresses all four pensions — not one,” he said.
The job of persuading Chicago aldermen to walk the political plank — again — will not fall to Emanuel alone.
He’ll be joined by labor leaders whose members draw their retirement checks from the Municipal Employees pension fund and stand to lose them if that fund — with $18.6 billion in unfunded liabilities — is allowed to go belly-up by 2025.
They’ve agreed to “put some skin in the game” with concessions and trade-offs that mirror those that helped save the Laborers pension fund, the smallest of the city’s four funds.
Now, they’ll lobby aldermen to do their part.
“Their constituents will have to pay more. But the people living in their wards will get the pensions promised to them years and years ago,” said Don Finn, business manager of IBEW Local 134.
“I don’t know what kind of backlash they’re gonna get. But my sales pitch is gonna be straightforward. We’re correcting a problem that we knew was coming and we’re in the 11th or 12th hour. We have to keep coming up with creative ways to finance things.”
Chicago Federation of Labor President Jorge Ramirez said protracted City Council debate about the new utility tax would simply hand Gov. Bruce Rauner another club to hammer Chicago.
Ramirez pointed to the threat of a state takeover and bankruptcy that ultimately forced the Chicago Board of Education to pay millions more to salvage a $725 million borrowing — at an extraordinarily high interest rate of 8.5 percent.
“The guy is our detractor-in-chief. He goes around the country bad-rapping Illinois and Chicago. He knows people in the financial world. This is where his level of expertise is. We can’t make it easy for him. We have to get this thing fixed and move on. If we don’t, we’re leaving ourselves open for stunts like Rauner pulled with the schools,” Ramirez said.
“My pitch to the aldermen is, we’ve got a chance to put this thing to bed. Let’s do it. There’s a lot of people who are counting on this pension. They don’t get Social Security. These are people who make our city work. They deserve to retire with dignity.”
Ald. Pat O’Connor (40th), the mayor’s City Council floor leader, said none of the aldermen who expressed opposition to the utility tax is “really offering an alternative.”
“They’re just laying the groundwork so they don’t have to vote for it. It’s great mis-direction, but not good public policy,” O’Connor said.
“Unless somebody comes up with something that’s solid and different, this is what they’re going to ride home with.”
Asked whether he will have the 26 votes needed to pass the painful pension tax, O’Connor said, “By the time we get there, I’m hopeful we will.”
The new tax is expected to cost the average homeowner $4.43 more-a-month or $53.16-a-year in 2017. In the fourth year, the added tax burden will be $225.96-a-year.