On Wednesday, October 28, 2015, I voted YES on Mayor Emanuel's 2016 budget. The budget includes a $544 million dollar property tax increase to pay statutorily required pension contributions. Voting YES was a difficult decision, and one I made with the City's long-term survival in mind. I want to thank all of you who gave your feedback throughout the budget process. My rationale for the YES vote is below.
My budget vote brings me back to GROWCommunity. Building a neighborhood K-12 system in our community has been my top priority since taking office in 2011. Since then, we've directed millions of TIF funds, hundreds of thousands of dollars in aldermanic menu funds, and over $500k in private funds to our neighborhood schools and high schools. I knew in 2011 that a property tax increase was inevitable. I just didn't know when the politics would catch up with our fiscal reality. And so I talked about this tax increase during budget town halls in 2012, 2013, and 2014; during community meetings, and during my reelection campaign. In addition to talking about the inevitable, I began to work to guard against the increase by focusing efforts on our neighborhood high schools.
Most families move to our community for the K-8 schools. And a large percentage of the families that move to our community, move to the suburbs for high schools. This is reflected in our neighborhood school populations. For example, today at Coonley, there are five kindergarten classes and only one 7th and 8th grade class. This is true at most of our neighborhood schools. Our neighborhood schools are bursting with students in the lower grades with the student population thinning out as students near the eighth grade. Why? The selective enrollment process and stress drives many families out of the city. This is reflected in what it takes to actually gain admission to a selective enrollment high school. In most cases, children have to earn straight As and test above the 95th percentile to even have a chance at admission to one of the selective high schools. For most families, the pressure is too much. So they flee for the suburbs and pay significantly more in taxes to obtain stability for their children. This stability is what #GROWCommunity is seeking to provide all families in our community.
This lack of stability creates a constant churn of families moving into our community for neighborhood K-8 schools only to leave for suburban high schools. This has resulted in skyrocketing land costs and rising assessments. The loss of affordable housing in our community is alarming. The number of housing units lost to 2 and 3 flat conversions to single family homes is concerning. In sum, our neighborhood K-8 schools are attracting families and catalyzing new development, but the selective enrollment system is pushing these same families out to the suburbs. The families that leave are replaced with families with young children and the cycle continues. My goal is to reduce the churn and keep families over the long term which will stabilize the real estate market and help our community grow our overall population. The constant outflow is also a loss to our tax base which drives up costs for everyone, and as more people stay our tax base will recover. In sum, when more families stay in the city, we are all better off. Children or no children, we all have an interest in keeping families in the city.
And if more families stay, our entire community will become more resilient to the larger economic issues impacting our city and state.
Below, you will find a summary of the most frequently asked questions I have received throughout this process.
Why raise taxes now?
For decades, we have failed to make the hard choices necessary to right our financial ship. Instead of raising prices on parking meters or the Skyway, our assets were privatized and proceeds were used to fill the operational deficit. Rather than incrementally raising revenue, all revenue decisions were delayed leaving growing annual deficits. And finally, the deficits grew so big by 2011 that we saw an exodus from the City Council. The era of papering over deficits is over, and we must meet our obligations. The tax increase we passed finally begins to address decades of financial inaction.
Why property taxes?
In 2010, the Illinois Legislature passed a bill which requires the City of Chicago to make actuarially-based pension contributions (on an annual basis) to the police and fire pension funds. As a result, a combined $540 million is due to the police and fire funds in 2015 with an additional $300 million due in 2016. The Mayor is seeking to slow this requirement in Springfield via Senate Bill 777 -- and so Chicago needs to raise $544 million through 2019 to make payments to police and fire pensions. If the city fails to make the required payments, the state will withhold the funds due the city to cover pension payments. Withholding funds from the City used to repave roads, fund public health programs, and other critical services, would have catastrophic impacts to our City. Raising property taxes was our only option available under law to pay pension obligations.
How much more will I pay as a result of this increase?
The 2016 City budget authorizes a $544 million dollar increase in property taxes to cover the increased pension costs. The table below estimates taxes under the current homeowner exemption for residential owner-occupied properties. See the table below for estimates on what you can expect to pay as a result of the increase. The Chicago Tribune also has a calculator available on their
|To see a full size image of this table, please click the table above.
It is important to note that commercial and industrial property owners (including rental buildings) pay a higher rate of tax and will see larger increases than those detailed above. Additionally, the Mayor is seeking to double the homeowner's exemption to $14,000 to help reduce the burden on lower income households and seniors. This exemption will need to be approved by Springfield, but was approved by City Council on Wednesday. Should Springfield fail to authorize the exemption, it is likely that the City of Chicago will institute some kind of rebate program. I will keep you updated on this as we move forward.
Have any other kinds of taxes or sources of revenue been considered?
There have been a number of ideas generated by both the public and elected officials to try and find alternative sources of revenue to fund our pension obligation. See below for more details.
Financial Transaction Tax:
Some have argued that the City of Chicago should levy a financial transaction tax on trades made at the Chicago Board of Trade and other financial institutions in the city. Chicago does not currently have the legal authority to levy such a tax.
to read my view on a financial transactions tax.
Corporate Income Tax:
New York City levies a series of corporate income taxes. I believe creating a Chicago Corporate Income tax would be a fairer way to generate revenue and a much better proposal than a Financial Transaction Tax. This proposal would also require legislation to pass in Springfield. I continue to believe that this is an option for our city, and will work with our partners in Springfield to explore this revenue proposal.
to learn more about my idea for a Chicago Corporate Income Tax.
Graduated (Progressive) Income Tax for the State of Illinois: Illinois residents currently pay a flat tax on earned income. We are one of three states in the nation that does not tax income in a progressive manner. Since municipalities share in the revenues from the State income tax, a progressive income tax would generate millions for the City of Chicago and significantly reduce pressure to raise regressive taxes. This would require a change in state law and the Illinois Constitution. Many groups are continuing to work on this as part of the solution for the state's budget crisis and to resolve revenue crises facing municipalities and school districts across Illinois. I believe we must create the political will to pass a graduated income tax.
Tax Increment Financing (TIF): As you know, there are a number of TIF districts in the city that generate revenue from property taxes that can be used for economic development or public infrastructure within their boundaries. Closing Central Business District TIFs and other TIF reforms will provide $113 million to the City, CPS and other local governments, as part of the budget passed on Wednesday. Also, I worked with Ald. Burns and Mayor Emanuel to ensure that any new revenues created in TIF districts as a result of the property tax increase would be automatically sent back to schools, parks, etc. Additional reforms beyond our agreement are necessary, and I will continue to work on broader TIF reform.
Why not find efficiency, waste, or cut programs/jobs to raise the money?
Including this year's budget, we have generated almost $600 million dollars through efficiencies, vacancy eliminations, and other reforms over the past four years. The steps we've taken to close the structural deficit this year are:
- $61.1 million through: zero-based budgeting; lease, energy & IT savings; Sale of City-owned land; Contractual Savings
- $57.1 million through: Vacancy Eliminations; Healthcare Savings; & Retiree Healthcare Changes
- $57.9 million through: Sweeping aging revenue accounts and grant funds; TIF Surplus, Treasurer Investment Reforms
- $23.4 million through: Improved debt collection
- $7.8 million through: growth in economically sensitive revenues (sales tax, real property transfer tax, etc.)
- $125.3 million through: Rideshare fee and taxi fare increase; Garbage fee; Building permit reform; & E-cigarette tax
Also know that the majority (54%) of our corporate fund goes to fund Police and Fire Department service. A little more than a fifth of the budget is dedicated to pension contributions, debt service, and employee healthcare. Since 2005, the city has reduced its workforce by 14%. These reductions have created efficiency, but the costs per employee continue to rise due to healthcare costs and the scheduled wage increases negotiated through the city's collective bargaining agreements with 40 different unions. Since 91% of city employees are represented by a union, changes would be required to collective bargaining agreements to generate savings.
Efficiency is often touted as doing more with less, but often it means that the quality of service is reduced or less service is generated. Government services, especially public safety, are critical for the well-being of the 47th Ward and the entire city. Seeking to simply cut or privatize our way out of our obligations would result in draconian service reductions and a diminished quality of life for all residents. And the City Council tried this when they privatized parking meters. So we simply cannot cut our way out of our obligation, and trying to do so would be disastrous for Chicago. I remain committed to finding additional ways to improve city service, and believe there are ways to do so over time, but we cannot simply slash employees and resources from our city departments to balance budgets and meet our pension obligations.
Why is there a new fee to pick up garbage?
Cities across the country and many Chicago suburbs charge residents for garbage pickup to help balance the books and pay for the service. Our structural deficit this year remained at $232 million and the $70 million generated by this new fee is one way we are increasing the funding stability of core city services. The fee will be assessed as part of your water bill, and senior citizens will receive a 50% discount. The Mayor has committed to not raising the fee through 2019 as part of this proposal, and the city will continue to fund a majority of garbage pickup costs through property taxes. It is my hope that we will eventually be able to move to a fee based on volume to provide incentives for recycling, composting, and other waste-reduction strategies.
What about other independent analyses on the Mayor's proposal?
As you know, I passed legislation to create an independent budget office for City Council with Ald. Pat Dowell and Ald. Michele Smith. We created the office to ensure there was an independent evaluation of the annual budget, major public policy proposals and public private partnerships. Had such an office been in existence in 2008, we likely could have prevented the passage of the parking meter deal. This summer, City Council appointed Ben Winick as the first-ever director for the City Council Office of Financial Analysis (COFA). The creation of this office was supported by the editorial boards of the Chicago Sun-Times and Chicago Tribune. In fact, the Chicago Tribune billed the creation of the office as "bona-fide reform."
Mr. Winick and COFA are tasked with providing City Council with independent analyses on the following:
- a financial analysis of the Mayor's proposed annual budget;
- an annual budget options report of potential cost saving reforms and efficiencies;
- a summary and analysis of the city's annual audit;
- a review of proposed public-private partnership agreements or asset leases;
- an annual report on the council financial office's activities;
- a review of the annual financial analysis;
- an analysis of rating agency actions; and
- a quarterly report of all fiscal impact statement prepared in that quarter; and
- other analyses upon the request of the Chairman of the Committee on the Budget and Government Operations.
And last week, Mr. Winick and COFA issued the first report of the newly created office. The report analyzes Mayor Emanuel's budget and the conclusion is: while the budget is far from perfect, the budget is honest and provides for a firmer financial footing. You can read Mr. Winick's report by
The Civic Federation also supported the 2016 budget. To read their analysis,
Going forward, it is my hope that we come together to push Governor Rauner to embrace a graduated income tax and a Chicago corporate income tax. In the coming years, the City is going to need additional revenue to invest in critical infrastructure, social services, and much-needed investments in our communities.
Finally, this was a very difficult vote and I did not take it lightly. I understand that my vote will impact every person and business across Chicago and in the 47th Ward. Please know that I made my decision with our City's long term interests in mind. To view my speech from the Council Floor, please
(remarks begin at 1:28:50).
Thank you again for all of your feedback, and for the opportunity to serve.