Chicago leaders can still fix runaway budget, tax hikes

Chicago Mayor Brandon Johnson failed to rally the votes for a record $17.3 billion budget imposing $68.5 million in property tax hikes. City leaders have another chance to fix the budget. Here’s how they can do it.

Chicago Mayor Brandon Johnson had to push back a vote on his 2025 budget and its $234 million in tax hikes that was expected Dec. 13, apparently meaning he doesn’t have the votes to impose all those taxes that include $68.5 million in property taxes.

So it’s time for Chicago aldermen to rethink Johnson’s $17.3 billion budget plan. Here is what is wrong with Johnson’s current proposal, and how to fix it.

The fix, in a nutshell:

• Cut spending, especially expenses added using temporary federal pandemic aid and tax increment financing sweeps.

• Cut non-personnel and staff spending, with exceptions for frontline public safety.

• Promote policies that will foster the economic growth required to stabilize the city’s finances.

• Push for amending the Illinois Constitution to allow public pension reform.

Chicago leaders have allowed spending to balloon, with huge increases following the pandemic. Temporary federal funds were treated as permanent revenue, so a painful correction is needed to stop aggressive new taxation and the exodus as Chicagoans find communities that better respect their wallets.

Just since 2019, the city has added $3.6 billion in non-personnel costs, $748 million in personnel expenses and over $1.6 billion in pension costs. Chicago’s proposed budget is higher than ever and is still facing a $982 million deficit.

As part of his strategy to close the gap, Johnson initially proposed a $300 million property tax hike, the second largest in the city’s history. After all 50 Chicago aldermen rejected it, Johnson lowered his property tax proposal to $150 million and invented a slew of other new taxes to come up with the $300 million. Now, his plan is for a $68.5 million property tax hike plus new taxes, fines and fees totaling $234 million. Other cuts get him to $335.7 million.

Johnson campaigned as opposing property tax hikes. He was against adding new speed cameras and increasing congestion fees for rideshare services. But now he’s championing regressive taxes that will hit the city’s most vulnerable residents because he wants to spend more than the city can afford.

Johnson’s plan includes reducing the city’s debt payments, short-term relief that will lead to larger future deficits. He also wants to cut the Department of Fleet and Facility, basic income and small business assistance programs. Together, those moves give him $90.2 million in savings.

But much deeper cuts are needed. Chicago, by law, needs to pass a budget by Dec. 31.

$233.9 million in new taxes and fees to plug part of Chicago’s nearly $1 billion budget gap

Here’s a closer look at the new taxes, fines and fees Johnson wants.

Property tax increase ($68.5 million)

Chicago’s proposed increase to the property tax levy will raise total collections from $1.82 billion to approximately $1.9 billion in 2025. Property taxes in Chicago have already more than doubled since 2014. During the past decade, Chicago’s property taxes have grown 3.5 times faster than inflation.

Chicago already imposes some of the highest property taxes of any major city in the nation. The city has the highest industrial property taxes at 2.43%. It also ranks second highest in commercial property taxes, second highest in residential property taxes and third highest in apartment property taxes.

Increasing this burden will exacerbate the city’s housing affordability crisis. Almost 43% of Chicagoans face housing and rental costs higher than the federal benchmark of 30% of income.

Personal property lease transaction tax increase ($128.1 million)

Johnson also proposes increasing the tax on cloud computing and other leases, known as the personal property lease transaction tax. Cloud computing software is commonplace in modern workplaces, with employers relying on it for everything from bookkeeping to employee time-tracking, email and more.

Johnson’s proposal will raise the personal property lease transaction tax from 9% to 11%, totaling $128 million for Chicago residents and business owners. When Mayor Lori Lightfoot first introduced these taxes in 2016, the rate was 5.25%. If Johnson’s plan passes, that will be a 110% rate increase since its inception.

Chicago already has among the highest cloud computing tax rates in the country. The new 11% pushed by Johnson’s budget plan will eclipse Seattle’s 10.35% rate for the nation’s highest. It will thwart the effort to make Chicago the nation’s quantum computing hub.

A massive increase in Chicago’s personal property lease transaction tax threatens future economic growth and poses a serious challenge for 5,000 companies registered for the tax, including CME, Citadel, Salesforce, Kraft Heinz Food Co., the Blackhawks, the White Sox and the Cubs. Chicago has been hemorrhaging businesses and talent for years, with a loss of almost 10% of its tech workforce between 2018 and 2023.

Increase in amusement taxes for streaming and cable TV services ($12.9 million)

Dubbed the “Hamilton Tax,” Chicago currently imposes a 9% tax on amusement devices and services, including movie theaters, concerts, sporting events, cable TV and streaming services. Johnson’s tax package will increase the city’s amusement taxes to 10.25% in 2025, generating an additional $12.9 million in revenue. This tax will come in addition to the 3% county-level tax on amusement.

The average American spends $46 a month on streaming services. With an 8% service fee, this rises to $48.60. Chicago’s new fee will increase the annual cost to $55.35. High costs have led 45% of users to cancel at least one subscription in the past year. In 2023, the average American spent $951 on admissions to entertainment events, including concerts, sporting events, movie theaters and more. A 10.25% surcharge would add $97.40 annually.

In 2017, Chicago’s three major professional sports teams, the Cubs, Bulls, and Blackhawks, all opposed Chicago’s high amusement taxes.

Parking garage and valet parking services tax increases ($11.3 million)

Johnson’s plan includes generating $11.3 million from increasing parking garage and valet services taxes. If his plan passes, these taxes will increase from 22% to 23.35% on weekdays. A 20% tax will also be applied on weekends.

For every $20 dollars Chicago drivers pay at city parking garages or valet services, about $10.50 currently goes to city, state and county taxes. The number of parking garage users is already down 35% from pre-pandemic levels. Businesses and consumers may be driven to areas with cheaper parking or shift to remote work, worsening Chicago’s already record-high downtown office vacancies.

Congestion surcharge on rideshares ($8.1 million)

Lightfoot introduced taxing weekday rideshare services in 2020. To generate $8.1 million, Johnson’s plan will apply taxes to weekend rideshares downtown. It will lower the surcharge from $3 to $2.75 applied to weekdays.

A Lyft spokesperson said, “This proposed tax increase would only make it harder for Chicagoans to get to medical appointments, the grocery store, or simply back to their homes. At a time when people are still recovering from record inflation and high cost of living, now is not a time to make getting around the city even more expensive.”

Grocery bags fee increase ($5.2 million)

Johnson wants to increase the tax on single-use paper or plastic shopping bags by over 40%, from 7 cents to 10 cents. This proposal comes as the average Chicagoan is already spending nearly $3,000 more a year on groceries than they were in 2020. Studies have repeatedly shown any type of grocery tax is regressive.

New speed cameras ($11.4 million)

Under Johnson’s plan, the city will spend about $2.64 million to install new speed cameras in the hopes of generating an additional $11.4 million in revenue.

Since they were turned on in 2013, Chicago’s speed cameras have taken $933 million from drivers, sending at least 10,318,536 tickets . Johnson was right during the campaign when he labeled cameras as “regressive” taxation and a “cash grab”: low-income residents nearly half of the time pay late fees that more than double ticket costs.

Studies have shown speed cameras have negligible effects in reducing traffic accidents. They are about cash.

So, what should Chicago leaders do?

Chicago aldermen should protect taxpayers and reject Johnson’s proposal. Chicago needs sensible, long-term solutions, such as:

• Implementing all cost-saving options before introducing any new taxes and fees. This includes significantly cutting costs on non-essential projects and non-essential personnel that do not contribute to frontline, public safety efforts.
• Avoiding short-term fixes that become bigger long-term problems. Using temporary COVID-19 relief funds to create permanent costs was an example. So is constantly depending on raiding tax increment financing surpluses and delaying debt payments.
• Urging the Illinois General Assembly to put a constitutional amendment on the ballot that would allow for pension reform. Bringing down costs in a city with more pension debt than 43 states is the surest way to fix city finances and stop abusing taxpayers. Comprehensive pension reform would preserve retirement security for public workers, curb property taxes and stop pension costs from eating resources that should fund the government services taxpayers expect.

Chicago leaders need to make tough but necessary choices about this budget. They must prioritize fiscal responsibility over short-term fixes that only dim the city’s future.