No tax increase says Emanuel, others say Chicago needs more money

2019 may prove to be a landmark year for the nation’s third largest city in a mayoral race dominated by an embattled, and controversial, incumbent, beset by a myriad of financial and social ills, not to mention a consent decree to help harness a long-held problem of recorded police brutality, and their racial prejudice towards black and brown people.

For Chicago, despite these ills, and challenges, the one area that needs an equal measure of attention are city finances --- despite the recent report heralded by Mayor Rahm Emanuel’s office giving the good news of no upcoming tax increases.

The Chicago Tribune reported that  “his budget team on Tuesday ruled out any major tax increases to close a relatively small projected budget shortfall in the coming year.

The 2018 Annual Financial Analysis, a starting point for shaping next year’s spending plan, pegged the 2019 operating budget shortfall at $97.9 million — the lowest predicted gap since Emanuel took office in 2011, when the mayor had to close a 2012 budget chasm of $636 million.”

The intention of confidence, however, may not be the last word, but there are those that are looking for more from the mayor’s office with a laundry list of other debt that still threatens the city.

The Tribune also reported Budget Director Samantha Fields saying that “a property tax increase would not be needed to balance next year’s books.

“We don’t expect to have a tax increase that you’ve seen in the past, but we’ll have a better idea of how we’ll solve for the gap in the next few months,” she said, before flatly ruling out a property tax increase. “We may have small recommendations from the departments on revenues here or there, but I don’t anticipate any large ones that will move heaven and earth.”

Bloomberg News reported that “Emanuel has made progress, pushing through higher property taxes and utility levies to shore up the city’s retirement funds that were on track to run out of money. His plan has the public safety pensions on track to be 90 percent funded by the end of fiscal year 2055, and the municipal and laborers pensions at that level by the end of 2058. As of Dec. 31, the four funds were only about 27 percent funded, after years of inadequate contributions.”

In 2014  “Emanuel proposed a budget for the following year that included a few relatively minor increases in targeted taxes to raise $61 million. Months after winning re-election in early 2015, he pushed through a phased-in $543 million increase in property taxes to boost contributions to pension funds for city police officers and firefighters.”

Taking the beast by the horns, say his critics, is exactly what he is not capable of and “if he emerges victorious from what is shaping up to be a large field of mayoral contestants in next year’s election, he may again have to deliver bad news to city taxpayers. The financial analysis shows that the city in 2023 will need more than $2.1 billion to make its required contributions to the city’s four worker pension funds, up from about $1.2 billion next year.

“All in all, the city of Chicago is in a better structural position than prior years,” said Laurence Msall, president of the Civic Federation, which monitors state and local finances, “but it will continue to face revenue and expenditure pressures resulting in projected growth in future deficits.”

The city projects that spending for day-to-day operating costs will increase next year to more than $3.8 billion, an increase of nearly $50 million over budgeted spending for this year. That’s attributable to rising personnel costs and some expansions of city services, Fields said.”

In addition, Chicago “could find itself facing higher costs that were not included in the projected budget forecast. Those potentially include tens of millions of dollars for raises and back pay for police, firefighters and some other city workers whose unions are negotiating new contracts — as well as any costs added to the expense of running the Police Department as a result of a proposed federal consent decree aimed at restoring community trust in the long-troubled department.”

Mayoral challenger Lori Lightfoot, in a recent news conference, noted the absence of costs in the report by the mayor; what she called the absence of  “specific dollars” and noting that the cost for the monitor alone might be as high as $2.5 million, with an overall price tag to implement the reforms would cost at least $10 million a year, insisting that those costs be written into the document itself.

Emanuel in his first term tried to reduce the city’s pension fund obligations, but the Illinois Supreme Court overruled the changes, saying they violated a state constitutional clause that state pension benefits, once granted, “shall not be diminished or impaired.” That left him little choice but to turn to tax increases.”

The hue and cry over the price tag of the tax increase also resulted in a raft of regressive taxes from barking dogs to their tags, and a near revolt over additional county charges for sales tax, that is among the highest in the nation’

Adding a severe lack of affordable housing, has made city finances glow like a bonfire on Guy Fawkes Day.

This also came on the heels of the closing of more than 50 schools in predominantly black areas, ostensibly to make them better, but the result  has been a boon for real estate developers, since the sale of the buildings to be recast as condos, as part of a city-wide move to gentrification.

For example, In the Uptown neighborhood, one centrally located school, the Graeme Stewart, has been made over into a series of pricey condos designed to hasten neighborhood gentrification. And, as sociologists have noted, the presence or absence of a good schools can make, or break a neighborhood, but especially, for the low-income residents that will be displaced.

To be fair, the mayor did inherit a pile of debt and bad ideas: frequent pension holidays by Mayor Richard M. Daley, and raiding the teachers’ pension fund to prevent a fare increase for the CTA, and the infamous parking meter deal with J.P. Morgan Chase, that left a bitter taste in the mouths of Chicago taxpayers.

Emanuel, in turn, has not looked at other ways to handle the pension payments and city finances in general, seemingly, as his critics point out, is his penchant to pass any legislation, no matter how effective, just as long as something is passed.

When I interviewed David Fernandez, a New York based public finance attorney with Buchanan Ingersoll & Rooney for my now defunct Examiner column, he said in an emailed statement, ”Perhaps it is time for Chicago to look back at NYC in the ‘70’s and find a way to create its own Municipal Assistance Corporation.  The restructuring of debt within the constraints placed by the courts and utilizing creative ways to provide access to the markets while preserving both the requirements of the existing obligations and the reserves being held by the City are going to be paramount in allowing Chicago to avoid the drastic measures of increased property taxes.” 

Words that were not heeded, and have now, with the pending election, can be a political albatross as the mayor seeks reelection.

Still a matter of controversy is the Tax Increment Financing, a vehicle to improve blighted neighborhoods, the city describes as a tool “to promote public and private investment, with funds generated by growth in the equalized assessed valuation of properties within each TIF district,” but has come to be known as a slush fund for Emanuel, and which now has seen a dramatic 17.9 percent increase in the take.

While there are suburban TIFs, in fact twice as many, their combined revenue is bringing much less than half that is seen in Chicago. And, expanding the concept further are Transit TIFs, which for Chicago, generated $40 million, but as critics have noted, do not have to be designated as “blighted,” and such funds are used to attract major big box developers.

For Emanuel the charges of a slush fund are compounded by the lack of an annual debate on TIFs bringing in more property tax revenue, which has not been done.

Cook County Clerk David Orr has said, “Unless a municipality can demonstrate ongoing blight, taxpayers should not be required to continue funding additional development.”

Significantly also, despite some improvement, there is no easy way for taxpayers to track exactly how TIF funds are spent.

With all of the twists and turns that Chicago finances have taken, especially around pension obligations, there is more to come with public school financing, just around the corner.  And, it’s a reasonable assurance that it too will be a campaign issue.