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 Chicago Mayor Lori Lightfoot says she either needs authority
from Springfield to impose a progressive “exit tax” on high-end home sales, or a
property tax increase on all city residents could be underway.
She only has Nov. 12-14 to get that OK from state lawmakers before they adjourn
for the year. Chicago Democrats are part of the opposition.
Chicago’s $11.65 billion budget has an $838 million deficit that Lightfoot is
trying to fill with a host of new tax proposals: She plans to triple the tax on
solo ride-share trips in downtown Chicago to generate $40 million, double the
“restaurant tax” on dining out downtown to raise $20 million and impose a
progressive real estate transfer tax, which is estimated to generate $50 million
during 2020 and $100 million a year thereafter.
Chicago currently charges a 0.75% tax on real estate transfers, although the
total rate is 1.2% by the time the state, county and transit authority add their
own transfer taxes. Lightfoot’s plan would charge progressively higher city tax
rates on real estate transfers:
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0.55% for sales under $500,000
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0.95% for sales between $500,000 and $1 million
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1.5% for sales between $1 million and $3 million
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2.55% for sales over $3 million
Democratic state representatives holding up Lightfoot’s plan in
Springfield say they’d prefer to generate even more from the tax. They want to
generate $86 million for affordable housing by applying the 1.5% rate to sales
over $750,000 and charge 4% on sales over $10 million, according to Crain’s
Chicago Business. Those rates would apply to both residential and commercial
properties.
The Chicago area’s population has declined for each of the past four years.
Rather than taxing the residents who decide to flee or raising property taxes on
the homes of those who stay, Lightfoot should get at the foundation of the
problem: unaffordable growth of public pension costs.
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Her predecessor, former Mayor Rahm Emanuel, at the
end of his term came out in support of constitutional pension
reform.
A smart amendment to the Illinois Constitution’s
pension clause would protect workers’ already-earned pension
benefits but allow for changes in the growth of future benefit
increases – such as replacing automatic 3% annual raises with a real
cost-of-living adjustment tied to inflation. “There is nothing
progressive about 3% compounded raises for retirees and furloughs
for workers,” Emanuel said.
His backing came after he tried to fix city pensions in 2015 with
the largest property tax hike in city history, a $543 million boost
that was part of a total package of tax and fee hikes totaling $864
million a year. The plan didn’t work, and left Lightfoot with
limited or unpopular options for taxing her way out of the current
budget deficit.
Lightfoot inherited four city pension funds that are over $29
billion in debt and are only 25% funded. In total, Chicago taxpayers
are responsible for eight public pension systems that are $46
billion in debt, with payments expected to escalate by $1 billion
during the next four years.
Emanuel couldn’t tax his way out of the pension hole. Lightfoot
won’t be able to, either, especially with another $1 billion in
future payments pressing down on her.
Rather than spending her time and political capital trying to get
Springfield to let her tax Chicagoans’ exits, threatening higher
property taxes or floating any other tax hike destined to fail,
Lightfoot needs to reach the same epiphany that Emanuel did. She
needs to ask state lawmakers to pursue a constitutional amendment
that allows for control of future pension growth – a reform that
would improve government finances in Chicago, in Springfield and in
every corner of Illinois.
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