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 Chicago Mayor Lori Lightfoot is aiming to address a
worse-than-anticipated budget shortfall without another property tax hike – by
securing new power over other new taxes.
The Illinois General Assembly reconvenes for veto session for three days in
October and three days in November, during which Lightfoot hopes to persuade
state lawmakers to allow Chicago to impose a new tax on high-end professional
services, such as legal and accounting work, as well as raise taxes on home
sales exceeding $1 million, according to the Chicago Sun-Times.
Lightfoot’s plea for more taxing power comes just a week after a Tax Foundation
study found Chicago tied with Glendale and Long Beach, California, for highest
combined state and local sales tax rate in the nation.
Lightfoot previously floated a high-end real estate transfer
tax hike as a way to fund services for the homeless and create affordable
housing. But an inherited deficit originally thought to be $740 million now
stands at $1 billion and has commanded the mayor’s focus.
The city’s $1 billion deficit combines the structural deficit with pension
contributions, debt service, a “parade of wrongful conviction lawsuits” and
pending pay raises for public safety workers and teachers. The city is still
negotiating with those unions, with the Chicago Teachers Union threatening to
strike unless demands are met that total $479 million in the first year.
The mayor is presenting the tax proposals as a necessary alternative to hiking
property taxes, which are already so high that additional hikes would be
self-defeating by driving away residents. In 2015, former Mayor Rahm Emanuel
passed the largest property tax hike in city history, in large part to pay for
public safety pensions. Pension payments absorb most of Chicago’s property tax
levy, with the rest going to debt service. Nearly all of the $321 million in
water and sewer tax increases and 911 fees passed since 2015 go to pensions as
well.
In Cook County as a whole, effective property tax rates have spiked by 22% since
2007, despite home values remaining 31% below their pre-recession peak.
Tumbling dice
In some respects, high taxes are already reaching a point of diminishing returns
for the city. An Aug. 13 study commissioned by the Illinois Gambling Board found
none of the five proposed sites for a Chicago casino were feasible, citing the
“onerous tax and fee structure” imposed as part of the state’s recent gambling
expansion.
The study noted the five South and West side locations would come with an
effective tax rate of around 72%, and that a more central casino location
downtown could be profitable. If not for the layers of high taxes and fees, the
report found, the proposed Chicago casino would be the highest-grossing in the
state.
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The mayor’s goal for the Chicago casino, according
to the Sun-Times, is to raise revenue to shore up Chicago’s police
and fire pensions and close the city’s budget shortfall.
Lightfoot said she also plans to urge the General Assembly to revise
the tax structure governing a Chicago casino when lawmakers return
to Springfield for veto session, according to the Sun-Times. A
Chicago casino would be taxed more than other Illinois casinos, with
a one-third tax on the amount it pays to winners.
Illinois has a dismal track record betting on gaming revenue
windfalls. In 2009, Illinois legalized video poker and slots to help
fund a $31 billion infrastructure spending program. State lawmakers
anticipated revenues of $1 billion by November 2013, but the
expansion yielded less than $70 million by that time. Ultimately,
the infrastructure program saddled taxpayers with $10 billion in
debt .
Long-term solutions to long-term problems
In keeping with the rest of the state, the leading cause of
Chicago’s fiscal problems is its worsening pension crisis. The
city’s four pension funds are over $27 billion in debt and are only
26% funded. But like the budget deficit she inherited, Lightfoot has
suggested the city’s pension debt could be even worse.
In the first year of Lightfoot’s term, Chicago’s required
contribution to the city’s four pensions systems will increase to
$1.3 billion – over $120 million from the previous year – before
eventually reaching over $2.1 billion in 2023.
Chicago’s new mayor should not repeat the mistakes
of her predecessor, who approved $864 million in tax hikes before
making a public plea to Springfield for constitutional pension
reform.
Lightfoot on the campaign trail declined to support the idea of
changing the Illinois Constitution to reform pensions. But the
unaffordable costs that have repeatedly driven her to seek aid from
Springfield should make clear that amending the state constitution
is the only long-term solution to stemming the growth of those
costs.
That is why it is essential that Illinois pass a constitutional
amendment that protects workers’ already-earned pension benefits but
allows for changes in future benefit accruals, such as replacing
automatic 3% annual raises with actual cost-of-living increases tied
to inflation.
“I know how Chicago families, just like families in my [hometown],
plan their lives and budgets around the pension promises we’ve
made,” Lightfoot said in a statement on her campaign website.
Looming insolvency threatens to rob future retirees of those
promises; constitutional reform is the only way to keep them.
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