The City Council Committee on Budget and Government Operations is holding hearings this week on Mayor Emanuel’s 2016 budget proposal to the City Council.
To view the Mayor’s proposed budget in its entirety, CLICK HERE.
The Mayor’s Budget Proposal
The City is facing its greatest fiscal challenges in over 80 years. In an effort to bring the City to fiscal stability, restore its credit rating, and secure the retirements of our police and firefighters, the Mayor has proposed a budget that includes a mix of cost-cutting measures and revenue increases.
The proposed budget includes $170 million in savings and reforms, bringing the total saved over the past five years to $600 million. This includes increasing the efficiency of the grid system for garbage collection, ending free garbage pick-up for the remaining multi-unit buildings that received the service, placing street sweeping on a grid, going after scofflaws, reducing employee health care costs, and implementing tax increment financing (TIF) reforms and shuttering central business district TIFs.
Though these savings are substantial, they do not begin to close the wide budget gap faced by the City next year.
The biggest cause of this budget gap is the City’s unfunded pension liability. State law requires the City to put its police and fire pension funds on a path to financial solvency over the next 25 years. This includes a mandate that the City make a $500 million “balloon payment” to those two funds by the end of this year.
In order to meet the City’s pension obligations, the Mayor is proposing to phase in a $544 million property tax increase over the next four years. If approved by the City Council, homeowners will experience a 12.2% increase in the City’s portion of their property tax bill over the current 2015 estimated tax bill.
The Impact of the Proposed Property Tax Increase on the Average 49th Ward Homeowner
What does this mean for the average 49th Ward homeowner?
The median fair market value for a home in the 49th Ward is $148, 750. Currently, the estimated 2015 tax bill on that home is $2,301. If the Mayor’s proposed property tax increase is approved by the City Council, the City’s portion of the tax bill on that home willincrease by $164 in the first year and $282 over a four-year period, bringing the total estimated tax bill in 2018 to $2,583.
Keep in mind that the City’s portion of the property tax levy represents only 17.5% of your overall tax bill. Other taxing bodies, such as schools, the County, the Park District and the Water Reclamation District, among others, constitute the other 83%. Tax increases by those other taxing bodies may enlarge the estimated bill further.
For a breakdown of a typical Chicago taxpayer’s property tax bill, click on the image on the left.
In an effort to reduce the impact of the property tax increase on working families, the Mayor has proposed doubling the state homeowners’ exemption from $7,000 to $14,000. This would require a change in state law. State House Speaker Michael Madigan and Senate President John Cullerton have voiced support for the proposal. Governor Bruce Rauner, however, has yet to state a position on the Mayor’s proposal.
In fact, the median 49th Ward homeowner would actually see adecrease in the City’s share of his or her property tax bill. The increased homeowners’ exemption would result in a savings of $439 in 2015 and an overall savings of $464 by 2018.
Enactment in Springfield of the homeowners’ exemption increase is by no means assured. As a back-up plan, I am supporting Alderman Joe Moreno’s proposal that would offer a rebate to middle and lower income homeowners on their property tax bill. The City does not require any approval by Springfield to enact the rebate proposal.
The Proposed Garbage Collection Fee
The Mayor’s budget also proposes a$9.50 monthly fee per household for City garbage collection. This fee is expected to generate over $60 million.Seniors on a limited budget will be protected through a 50% discount on the new fee. Nearly every suburban community in the Chicago area and most major cities in the U.S. charge a garbage collection fee, with some charging as much as $100 a month.
The City currently picks up garbage from buildings of five units or less, while owners of buildings larger than five units are required to hire a private scavenger service to pick up their refuse. In the 49th Ward, over 80 percent of the households live in buildings larger than five units and pay for their garbage pick-ups either through their condominium assessments or their rent. A strong argument can be made that charging a fee for City garbage pick-up makes it fair for everyone.
Soliciting Your Comments and Suggestions
I am examining the Mayor’s proposals carefully and will be attending the budget hearings over the next two weeks before I make a decision on whether to support his proposed budget.
When offering your ideas, please keep in mind that the City’s ability to raise revenue is limited by both state and federal law. Some have suggested levying a financial transaction tax on trades in commodities and futures. Others have suggested a tax on suburban commuters or a progressive City income tax.
As meritorious as those ideas might be, the City does not have the authority to levy such taxes without approval by Congress and/or the Illinois General Assembly.
Finally, some have suggested accessing funds in the City’s various tax increment financing (TIF) accounts. This is based on the false assumption that TIFs contain a huge reservoir of untapped funds.
In fact, of the $1.38 billion contained in the City’s 147 TIF districts, $1.24 billion is already committed to projects, the vast majority of which are neighborhood capital projects, including improvements to schools, public transit stations, streets, sidewalks and the like. This leaves only $141 million in uncommitted TIF reserves.
The Mayor’s proposal calls for the distribution this year of $113 million of those reserves. The City cannot keep all that money, however. State law entitles all the taxing bodies in the County to receive their pro rata share of any TIF disbursements. As a result, the City will receive only 17.5% of the TIF proceeds, or approximately $20 million.
What about the remaining $28 million in uncommitted reserves?
TIF remains one of the only tools available to the City to incentivize economic development, so simply emptying the TIF districts of all their reserves would be an extremely penny wise and pound foolish approach. But even if we emptied the TIFs of all their reserves, the City would only be entitled to its 20% pro rata, or approximately $4.9 million.
It sounds like a lot of money, but it is a mere drop in the bucket when compared to the unfunded pension liability and the City’s ongoing structural deficit.
Once again, I am extremely interested in hearing your thoughts and suggestions on the Mayor’s proposed budget. Please email me at email@example.com.