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 Taxpayers have been asked to pay more for water and sewer use,
3 cents a gallon more for gasoline, rideshares, and other taxes, fines and fees.
Chicago’s 10.25% sales tax is the nation’s highest combined rate for a major
city. Even listening to Spotify or watching Netflix is hit with a 9% amusement
tax.
Then there are property taxes. On average, from 2000 to 2019, residential
property taxes in Chicago rose by 164%. They rose $543 million just during
former Mayor Rahm Emanuel’s term and Mayor Lori Lightfoot in her current budget
added $94 million in property taxes, plus created automatic annual increases
tied to inflation.
So when the cost of city government was compared to the quality, Chicago ranked
141 out of the nation’s 150 largest cities, according to researchers at personal
finance website WalletHub.
WalletHub based its rankings on a combination of the quality of city services
and the city budget per capita. It measured city efficiency – whether city
residents were getting a good return for their tax dollars. Low costs and great
services ranked high, while high costs and poorer services ranked low.
In addition to an overall score, WalletHub provided individual scores for
quality of services and for total budget per capita. Chicago did poorly on both
measures, ranking 136th for cost per capita and 140th for service. Washington,
D.C., took the bottom spot overall, but even though its costs per person were
the highest in the survey it services ranked relatively high in quality at No.
30. Detroit offered the worst city services, with costs ranking at 99th.
Chicago’s heavy tax burden would be less of a problem were taxpayers getting
value for their money. High costs in Seattle, Washington and New York City
translated into high quality services, WalletHub found.
So where is Chicago’s money going?
Chicago’s pension debt is largely to blame for the city’s high expenditures
crowding out the public services taxpayers expect for their money and that can
protect housing values.
A decade ago Chicago spent $450.5 million on pensions, 5% of total city
spending. In 2021 the city will spend $1.82 billion on pensions, or 15% of total
spending.
The problem will get worse without meaningful pension reform.
For fiscal year 2022, the city projected its pension contributions will balloon
to $2.25 billion. That amount may underestimate the problem because Chicago
recently adopted actuarially-based funding. This would represent, at minimum, a
$375 million increase. That amount exceeds the city’s yearly expenditure on City
Development, which includes the Department of Housing, Department of Cultural
Affairs and Special Events, and Department of Planning and Development.
If the yearly increase in pension payments exceeds amounts
spent on alleviating homelessness, promoting sustainable growth and providing
affordable housing, the city and its residents have a problem. That problem is
expected to grow.
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Annual contributions to city pension funds were
already projected to rise by $1 billion during the course of
Lightfoot’s first term in office. Even after the $375 million
increase expected in 2022, the city’s projections in the budget,
which run through 2026, show ever-escalating annual pension
contributions.
Despite Chicago’s rapidly rising taxpayer-funded pension payments,
it is unlikely they will be sufficient to meet Chicago’s
obligations. The city’s eight pension funds – including the four
funds to which the city contributes directly and four funds for
related entities funded by the same taxpayers – have accumulated
nearly $47 billion in debt, more than 44 U.S. states. Those pensions
are only 34% funded overall, meaning they have 34 cents saved for
every $1 in future promises. Pension experts consider plans below
40% funding to be past the point of no return and on the path to
insolvency or major cuts.
The money to fund these pensions must come from
somewhere, and keeping up with this growing financial burden is a
core reason Chicago taxes have increased in recent years. For the
most part, recent city tax hikes have not been implemented to
provide better roads or sanitation or to reduce the violence
plaguing the city. Rather, taxpayers have seen their burdens
increase largely in order to fund pension systems.
Local politicians understand runaway pension debt is an issue, yet
little has been done to address the problem. Lightfoot herself has
sent mixed messages on pension reform, often acknowledging the depth
of the problem and calling for change while failing to provide
specifics. She has criticized 3% compounded post-retirement annual
raises as “unsustainable,” but has not publicly endorsed a
constitutional amendment, which is the only way to change them. In
contrast, in his last months in office, Emanuel called upon
Springfield to send a pension reform amendment to the ballot for
voter approval.
In addition to being primarily responsible for Chicago’s increasing
tax burden, pensions have also begun crowding out core government
services.
This trend has been particularly noticeable at the state level, but
it has also begun manifesting itself at the local level. Since 2011,
Chicago’s inflation-adjusted pension payments have increased by
239%. At the same time, city spending on services has increased by
just 18%.
It is this dynamic that largely prevents Chicago
from providing services on par with its high-tax peers in New York
and Seattle. Both cities levy high taxes, but in the absence of
crushing unfunded pension debt they are able to direct those
taxpayer dollars back toward services for their citizens.
City leaders know the rapid rise in pension costs has hurt Chicago’s
ability to invest in the core services valued by residents, yet
meaningful reform has remained elusive. Rising taxes and declining
services can be expected until the state amends the Illinois
Constitution to allow for the control of future government pension
growth.
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