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Emanuel’s utility tax survives test vote, but it got a bumpy ride

Chief Financial Officer Carole Brown lobbies Ald. Tom Tunney (44th), left, and Harry Osterman (48th) hours before the City Council's Finance Committee approves Mayor Rahm Emanuel's tax plan by a vote of 26 to 6. | Fran Spielman/Sun-Times

Mayor Rahm Emanuel’s plan to slap a 29.5 percent tax on water and sewer bills to save the largest of Chicago’s four city employee pension funds easily survived an early test vote Thursday, but it wasn’t pretty.

The vote by the City Council’s Finance Committee was 26 to 6 — just enough votes to clear the full Council next week — primarily because aldermen had no choice and no realistic alternatives.

“No” votes were cast by the following aldermen: Leslie Hairston (5th), Patrick Daley Thompson (11th), Willie Cochran (20th), Ricardo Munoz (22nd), Scott Waguespack (32nd) and John Arena (45th).

Doing nothing and allowing the Municipal Employees pension fund to go belly up in 2025 would require the city to pay retirement benefits on a pay-as-you-go basis, at a cost of $1 billion.

But the lopsided vote was not an accurate reflection of the tough questioning or the high stakes.

Before the three-hour meeting started, Chief of Staff Eileen Mitchell, senior adviser Mike Rendina, Chief Financial Officer Carole Brown and Budget Director Alex Holt all could be seen lobbying individual aldermen on the City Council floor.

Budget Director Alex Holt buttonholes Ald. Ariel Reboyras (30th) prior to Thursday's Finance Committee vote on Mayor Rahm Emanuel's utility tax. | Fran Spielman/Sun-Times

Budget Director Alex Holt buttonholes Ald. Ariel Reboyras (30th) prior to Thursday’s Finance Committee vote on Mayor Rahm Emanuel’s utility tax. | Fran Spielman/Sun-Times

Once the hearing got under way, it became immediately clear why the one-on-one lobbying was continuing unabated — even after countless aldermanic briefings and individual meetings.

Brown and Holt faced hostile questioning from aldermen about the $300 million gap that would occur in 2023, when the tax on water and sewer bills would be fully phased in but will fall short of the revenue needed at that time to honor the city’s ironclad commitment to reach 90 percent funding over a 40-year period.

“It’s misleading for them to call this a 40-year plan, when you know that, in seven years, an additional revenue package has to be passed by this City Council to fund their 40-year plan,” Munoz said.

Budget Committee Chairman Carrie Austin (34th), the mayor’s most powerful City Council ally in the African-American community, complained about the double-whammy that would be imposed on poor people who use laundromats, because they don’t own washers and dryers.

Those people would get soaked because they would be forced to pay the tax twice — first for the water that’s a necessity in their homes, then in higher prices to wash their clothes at the laundromat.

“Those are the ones I’ve heard from the most,” Austin said.

Ald. Carrie Austin (34th) said the utility tax will mean higher prices at laundromats. | File photo

Ald. Carrie Austin (34th) said the utility tax will mean higher prices at laundromats. | File photo

Hairston said she, too, is “concerned about people on fixed incomes . . . Where do they go to pay these higher prices? And it’s not just for washers. It’s for dryers. They’re not going to raise the price of one machine without the other.”

Arena took the opposite approach. He argued that it would be more fiscally responsible for Emanuel to impose the 29.5 percent tax on water and sewer bills over a two-year period, instead of four.

“If I’m gonna take a politically tough vote, I’d rather do it now and be able to look my constituents in the eye . . . and say, ‘We are doing every last thing we can to solve this problem in the near term’ and not wait five years to do more . . . We’re here because we didn’t do this five years ago, when this [Emanuel] administration came in,” Arena said.

Predicting that requests for water meters would increase “exponentially” once the tax kicks in, Arena said, “If we know we have this cliff that we’re gonna hit and . . . people can alleviate their water payments by almost half by simply getting onto a meter, why not do this in two years or three years and generate more revenue faster so that $300 million gets cut by half?”

Holt said going “straight to” an actuarily required contribution is “absolutely an option.” But it would require lowering the boom even more on homeowners who have already endured $838 million in increased property taxes for police and fire pensions and school construction and for teacher pensions.

The current utility tax schedule calls for Chicagoans to pay 7.7 percent of their combined water and sewer bill next year, 8.4 percent in 2018, 8.2 percent in 2019 and 5.2 percent in 2020.

That would cost the average owner of a single family home $5 more a month and $60 a year in 2017. In the fourth year, the added annual burden would be more than $250.

“Go straight to the $878 million that the city would owe if we went to ARC today. We can do that. [But] it will require the tax, instead of ramping up to the $251, you’re talking about a tax that’s at least two times that,” Holt said.

“We took a slightly different approach, which was to ramp up over a five-year period, the same way we did for police and fire and laborers with the intent of trying to phase in the burden on taxpayers.”

Holt and Brown acknowledged that “more revenue” would be needed after the four-year phase-in of the new utility tax. But they insisted that does not mean Chicago homeowners and businesses are in for a never-ending cycle of tax increases.

Ald. Pat O’Connor (40th), the mayor’s City Council floor leader, was more direct about what the future holds.

“I don’t think anybody who is living in Chicago thinks this is the last tax increase that any City Council member is gonna vote on in this body for the next 10 or 15 years. There will be more,” O’Connor said.

“But this is going to put us into a situation where our pension funds will be ramped up to an actuarial funding. And it will allow us to, at the state level, begin to work on some answers that help us long-term. And that’s really where we want to be.”

Burned by former Mayor Richard M. Daley’s widely-despised decision to lease Chicago parking meters for 75 years and spend the $1.15 billion in proceeds, Austin also insisted on last-minute language that would prohibit the city from spending utility tax proceeds on anything but the Municipal Employees pension fund.