Rahm Emanuel Is Trying to Gouge Vapors with More Taxes

Rahm Emanuel raises taxes

Mayor Rahm Emanuel on Tuesday will call for property tax increases totaling $588 million over the next four years, part of an unprecedented series of tax and fee hikes he wants to shore up police and fire pension funds and balance the budget.

Five months after voters gave him a second chance, Emanuel will deliver the biggest budget speech of his tenure. He'll try to sell Chicagoans — and at least 26 aldermen — on the notion that digging deep into their wallets is the right move to reset the city's financial course.

About $543 million of the record property tax increase would help shore up woefully underfunded police and fire pension funds, a bill that's been looming for years and is now coming due. Another $45 million would go to Chicago Public Schools construction. To balance the budget, Emanuel wants a new monthly garbage-hauling fee, new taxes on ride-sharing and taxi trips, the first-ever taxes on electronic cigarettes and increases in building permit fees.

Even if he wins approval of all the tax hikes, Emanuel's $7.8 billion budget proposal comes with a measure of risk. It counts on Republican Gov. Bruce Rauner not standing in the way of legislation that gives Chicago more leeway on required increases in police and fire pension payments. If that bill is not enacted, the city could find itself $219 million in the hole next year.

In addition, the mayor hopes to persuade Rauner — who wants to freeze property taxes, not raise them — to sign off on an exemption plan that would soften the blow on city homeowners at the expense of landlords, renters and the business interests the governor has championed.

 

About $543 million of the record property tax increase would help shore up woefully underfunded police and fire pension funds, a bill that's been looming for years and is now coming due. Another $45 million would go to Chicago Public Schools construction. To balance the budget, Emanuel wants a new monthly garbage-hauling fee, new taxes on ride-sharing and taxi trips, the first-ever taxes on electronic cigarettes and increases in building permit fees.

Even if he wins approval of all the tax hikes, Emanuel's $7.8 billion budget proposal comes with a measure of risk. It counts on Republican Gov. Bruce Rauner not standing in the way of legislation that gives Chicago more leeway on required increases in police and fire pension payments. If that bill is not enacted, the city could find itself $219 million in the hole next year.

In addition, the mayor hopes to persuade Rauner — who wants to freeze property taxes, not raise them — to sign off on an exemption plan that would soften the blow on city homeowners at the expense of landlords, renters and the business interests the governor has championed.

On Monday, Emanuel and his top financial aides tried to frame the budget discussion as a matter of bringing stability to city finances after years of dropping credit ratings and financial tactics that papered over budget shortfalls.

"As we continue to grow our economy, create jobs and attract families and businesses to Chicago, our fiscal challenges are blocking our path to even greater success," Emanuel said in a statement. "With this budget, we will build on our progress in charting a new course for Chicago's future, and ensure that we are securing the retirements of our police and firefighters in a way that does not hurt those who can least afford it."

The city property tax hike would be phased in. It would increase by $318 million next year and another $109 million in 2017. The 2018 tab would go up by another $53 million, and the 2019 bill by $63 million. The total increase is $543 million — which Emanuel aides said would add about $543 to the tax bill on a home with a market value of $250,000. The overall tax bill on that home is now about $4,162.

The money would cover increased payments to police and fire pension funds outlined in a bill approved by the House and Senate but not sent to Rauner for fear he would veto it to keep pressure on Democratic legislators to enact the pro-business, union-weakening agenda he wants in return for more money for the state budget.

If Rauner were to veto that legislation, which phases in increased funding for the police and fire pension funds, the city would have to pay $219 million more next year into retirement funds than the amount anticipated in the mayor's budget proposal.

The $20 billion that the city owes to its four employee pension funds, all of which are at risk of going broke in as soon as a decade, has been consistently noted by Wall Street credit rating agencies that have repeatedly downgraded the city's bonds in recent years.

The ratings agencies also have criticized the city's practice of issuing new long-term bonds to pay off old long-term debts, a practice called scoop and toss that pushes debt onto future generations at higher cost. Emanuel has vowed to eliminate those "gimmicks and "shenanigans" over the next four years, even as the City Council Finance Committee on Monday endorsed a new $225 million in scoop-and-toss borrowing.

In his budget address, Emanuel also will ask the council to authorize an additional $45 million property tax increase for CPS that would add another $45 or so next year to the property tax bill of that $250,000 home. The money would go to construction projects to alleviate what the Emanuel administration said was classroom overcrowding. The Chicago Board of Education already has enacted a tax increase that would add another $19 to that property tax bill.

Meanwhile, owners of single-family homes, duplexes and four-flats would be charged for city garbage-hauling service for the first time at $9.50 per dwelling unit. Lower-income senior citizens would pay half that amount. The fee would be tacked on to water bills. It would bring in about $62.7 million a year.

The price of getting into an Uber vehicle or taxi also would go up. The per-ride city fee on ride-share services would increase by 20 cents to 50 cents. The same 50-cent fee would be tacked onto taxi rides for the first time. Ride-share companies also would be allowed to pick up at O'Hare and Midway airports and McCormick Place for the first time — but they'd have to pay a $5 fee for every drop-off and pickup at those locations as well as Navy Pier.

All the taxi and ride-share fees are expected to pump about $48.6 million in new revenue into city coffers.

To assuage taxi drivers and owners who don't want to see companies like Uber get pickup privileges at the airports and McCormick Place, all of which are exclusively served by taxis, Emanuel is proposing to increase taxi fares by 15 percent.

The mayor also will propose a new tax of $1.25 for every container of e-cigarette liquid plus 25 cents per milliliter. That would generate about $1 million, a tax hike aimed more at deterring minors from using the smoking devices than generating money.

Budget officials also said the mayor plans to increase building permit fees, something they said has not been done since 1999. That, they said, would raise about $13 million more.

Beyond the tax hikes, Emanuel also will propose declaring $113 million in "surplus" funds in controversial special taxing districts, with more than half of that going to CPS and about $22 million going to the city. He also will propose other ways to save tens of millions of more dollars by lowering health care costs, reducing the city payroll and other steps.

But the property tax increases and the garbage fees will clearly be the toughest measures to convince a majority of the city's 50 aldermen to vote for because those taxes and fees directly affect the people who vote for them.

"There are people in many parts of the city who may not pay as much as those in more affluent areas, but they also feel like they don't get the same services as in other parts of the city," Ald. George Cardenas, 12th, said Monday after a budget briefing. "So while the property tax increase is a big payment that Springfield has put on us, there is going to be extensive debate in the council about that and the garbage fee, because people are going to have a hard time accepting they have to pay more when they don't necessarily see the benefits of what they pay already."

Emanuel aims to build support by proposing an expansion of state exemptions so owners of homes worth $250,000 or less would not see a property tax increase as a result of the city hike. That's a proposal that could be difficult for Rauner to sign off on, given that it could be viewed as the governor enabling a property tax increase while he's trying to freeze property taxes across the state.

And if the exemption is expanded, the burden of a property tax increase would be shifted to owners of commercial properties and apartment buildings that don't get the tax break, meaning rents likely would go up. About 55 percent of the city's 1 million housing units are rented, according to the most recent U.S. census data.

"Renters pay property taxes," said Michael Mini, executive vice president of the Chicagoland Apartment Association. "They just don't write the check to the treasurer."