6 reasons why Chicago taxes will keep going up
Even with the city’s record tax hike and massive borrowing, lack of reform means Chicagoans can expect to open up their wallets yet again.
When Chicago City Council passed a record property-tax hike in 2015, Mayor Rahm Emanuel said the hike would “eliminate the structural [pension] deficit once and for all within the next four years.”
That couldn’t be further from the truth.
The fiscal holes in the city budget and the Chicago Public Schools, or CPS, budget continue to be so large that, in the absence of major spending and pension reforms, Chicagoans should expect more taxes and more pain – indeed, another property-tax hike is imminent.
Even with the record tax hike and massive borrowing, both Chicago and CPS continue to depend on bailouts from Springfield to make their precarious budgets “balance.” If those desperate plans fail – as is likely – then Chicagoans can get ready to open up their wallets again.
Here’s a list of six reasons why, without real spending and pension reforms, taxes will go up:
1. Emanuel’s modest law to reform the city’s municipal and laborer pension funds didn’t survive Illinois Supreme Court scrutiny. On March 24, the Supreme Court found unconstitutional several reforms including decreases in cost-of-living adjustments and requiring employees to pay more toward their retirement.
That means more than $160 billion in expected savings over 30 years is wiped out. Expect the City Council to look to tax hikes to make up the difference.
2. The city budget is counting on legislation from Springfield to delay more than $220 million in pension payments to Chicago’s police and fire pension funds. Emanuel wants to stretch out what the city owes to the pension funds by another 15 years, to 2050.
Amazingly, withholding funding from pensions is what contributed to Chicago’s crisis in the first place. Delaying payments is now part of Emanuel’s solution, but Springfield is unlikely to allow the city to kick the can on payments yet again.
But relying on a bailout from Springfield is like Puerto Rico looking to Greece for a bailout. Illinois has the lowest credit rating of any state in the nation, and is in no position to pay for the past failures of Chicago politicians.
4. The city and CPS have nearly maxed out their ability to borrow. Their junk-bond ratings mean they have to borrow at crushingly high interest rates, as witnessed by CPS’ recent $725 million tax-exempt borrowing. The school district was forced to pay an interest rate of 8.5 percent, which is the equivalent of paying an interest rate of nearly 13 percent on taxable bonds.
Of course, it’s taxpayers who have to repay that debt, and who shoulder the high interest costs that go with it.
5. The Chicago Teachers Union is threatening another strike as a follow-up to their weeklong walkout in 2012. But don’t think that because the district doesn’t have money, it won’t agree to big increases to salaries and other benefits. Or that because more than 4,000 pink slips have been handed out in the last three years, the CTU will moderate its demands.
In the 2012 negotiations, despite already facing a $1 billion operating deficit, the administration caved and gave in to CTU demands. Expect more of the same this time given a weak mayor that’s unlikely to put up a fight. Politically, the last thing he wants is a strike and the unions know it.
Unfortunately for taxpayers, higher salaries mean higher operating costs and bigger pensions – and higher property taxes.
6. CPS also continues its practice of borrowing more money to pay for old debt – what’s known as “scoop and toss.” Despite the mayor’s promise to end that practice, CPS played the game again recently by refinancing more than $200 million in old debt with borrowed money.
Eventually, CPS’ more than $6 billion in debt will have to be repaid through higher taxes.
City Hall seems to believe Chicagoans can stomach more tax increases, on top of all the nickel and diming that already burdens city residents.
That may be true for some Chicagoans with enough money to weather the storm, and who are willing to stick it out, as long as they can access the services they need and feel that they are safe.
But it’s certainly not true for others. Those who can’t afford to leave their jobs, for example, are trapped with higher costs, failing schools and more dangerous streets.
Others still will leave Chicago when they realize they are paying more in taxes, only to see that money go toward old debts. Chicagoans already shoulder the highest tax burden of any residents in Illinois’ major cities.
There will be those who argue that Chicago and CPS have a revenue problem and that there is no other way but to raise taxes. But that narrative is false. Both CPS and the city have spending problems and refuse to embrace real spending reforms.
Rather than accept more tax hikes, Chicagoans should send the mayor back to the drawing board to demand real reforms. Suffering residents can’t let this crisis go to waste.