Tag: taxes

Originally published on Huffington Post.

Chicago Mayor Rahm Emanuel is poised to squeeze city residents with the largesttax hike in modern Chicago history on Oct. 28. His plan includes a $588 million property-tax hike, a new $9.50 per-month garbage fee and other payment increases.

Emanuel isn’t the only politician soaking Chicagoans for more money. His counterparts in the state Capitol are hoping for more tax dollars as well.

Illinois has been without a state budget for more than 100 days; budget gridlock in the General Assembly has carried on for months as politicians who would continue asking for more from Illinoisans face off against those who want to fix Illinois’ structural problems, including more than $111 billion in pension debt and $6 billion in unpaid bills.

Unsurprisingly, Chicagoans aren’t warming to the idea of more tax hikes – on the state or local level.

When pollsters at Ogden & Fry surveyed people in Cook County, including many Chicagoans, on Oct. 21-22 to learn more about their opinions on government finances, more than 50 percent said they would have an unfavorable view of any elected official who votes for tax increases to balance the budget. The pollsters also found that the Illinoisans surveyed blame state politicians and Illinois House Speaker Mike Madigan for the budget gridlock.

Raising tax revenues on the back of a booming economy is one thing, but neither Chicago nor Illinois is experiencing growth on par with the rest of the country. And people are starting to feel the pain: Fewer than 1 in 5 Chicagoans think the city’s economy is becoming more prosperous.

The message is clear: The people of Illinois are frustrated with politicians who are unwilling to do what’s needed. Just 9.8 percent of the Illinoisans Ogden & Fry surveyed approve of the General Assembly’s performance; that’s even worse than Congress’ approval rating, which sits at 19 percent.

The hard truth elected officials are unwilling to face is that the only way to balance the budget in the long term without cutting services is through cost-saving measures and structural reforms to spur a moribund state economy.

As long as politicians refuse to do what’s necessary, those in need will continue to go without essential services, people counting on life-changing lottery winningswill continue receiving IOUs and Chicagoans will continue having to worry each day if they’re going to be able to pay the bills – in addition to footing the tab for more and more tax hikes.

Nobody buys a house without checking the fine print: What’s the crime rate in the neighborhood? How are the schools? What was last year’s property-tax bill?

For prospective buyers in Chicago, what’s missing from the equation is how much property taxes will go up in the future.

It’s not a good time to invest when the bottom’s falling out, and the foundation is slowly crumbling beneath the city of Chicago, which has a more than $34 billion pension-debt problem.

In spite of the city’s dire financial straits, however, Chicago realtors are experiencing a boom this summer, as prices are rising in the city and good listings are moving within a matter of days.

With average rent at nearly $2,200 per month, many Chicagoans in their 20s and 30s are opting for a mortgage instead of a lease.

But anyone thinking of investing in property in Chicago should read this disclaimer: Your taxes are going to skyrocket in the next few years, and, for the most part, your money will be going toward debt payments and pensions, not city services.

Illinois homeowners already face the second-highest property tax burden in the country, according to the nonpartisan Tax Foundation. Property taxes in the city are relatively low compared to those in the suburbs, though property taxes in the city went up by an average of $90 in 2014 according to Cook County Clerk David Orr. Property taxes on a home worth $199,000 totaled more than $3,300.

Property taxes are sure to continue rising in the city, with one main driver: public pensions.

For years Chicago has pushed off the harsh realities of its mounting pension debt in lieu of continuing to operate as if the problem didn’t exist.

But that approach is starting to come apart at the seams.

Chicago Mayor Rahm Emanuel is floating a proposal to increase property taxes by$175 million over one year just to pay for contributions to the teacher pension system, which is $9.6 billion in debt and has less than $0.50 for every dollar needed to pay out benefits.

Chicago Public Schools, or CPS, faces a $1.1 billion deficit for fiscal year 2016. CPS just made good on a $634 million payment to the teachers’ pension fund byborrowing and making stark cuts: more than 1,000 workers will lose their jobs and the CPS budget will be slashed by $200 million. Unfortunately, these cuts are par for the course for CPS over the past several years. In 2013, CPS closed 50 schoolsand laid off nearly 3,500 teachers and staff.

But teachers aren’t the only ones who get pensions in Chicago.

The pension fund for Chicago firefighters has $3.1 billion in pension debt, and just $0.24 of every dollar needed to pay for benefits.

The police pension fund has $6.9 billion in debt and less than $0.30 of every dollar needed to pay benefits.

All in, Chicago owes $34.5 billion in pension debt. That breaks down to $33,500 per Chicago household.

Where will the city turn to get out of this hole? Likely, officials will try to continue totake on debt, though this will become a much costlier option, given the city’s junk rating and extreme debt levels. That means the city will be more likely to hit up homeowners, and Emanuel’s one-year, $175 million property-tax increase proposal is just the beginning. An April 2015 study from Nuveen Asset Management revealed Chicago would need an aggregate property-tax increase of well over 50 percent for Chicago government to start tackling its pension crisis.Another estimate pegs the property-tax hike at 60 percent. Analysis from Crain’s Chicago Business suggests that property taxes could go up by 30 percent this year alone.

At the same time the city’s obligations are skyrocketing, its population is growing at a snail’s pace, gaining just 82 residents in 2014. With 2.7 million residents as of 2014, Chicago’s population is the same as it was in 1920.

City leaders are in a bind: Raising revenues on a stagnant tax base is a risky game. Drive any more residents out to greener pastures and that tax base will begin to shrink. This was the nail in Detroit’s coffin.

Big changes to the way city government operates are necessary if Chicago is to dig itself out of this hole. Ending special property-tax carveouts is one good place to start. Emanuel announced plans to freeze seven tax increment financing, or TIF, districts, freeing up $250 million over the next five years, according to the Chicago Sun-Times. TIFs use a portion of property-tax revenues generated in these special economic zones to give tax incentives to private developers located in these districts. Since 1986, Chicago has collected $6 billion in TIF funds, according to the Cook County Clerk. That’s $6 billion in a slush fund to subsidize private development projects, not school, park and library districts.

Sunsetting TIFs and uncovering hidden wealth won’t be enough, however – Chicago will need serious structural overhauls to end its pension bleed. Otherwise the city’s pension monster will eat Chicago alive.

Originally published on Huffington Post.

Buying local just got a lot less appealing for Chicagoans.

The city reclaimed the highest sales-tax rate in the nation on July 15, when the Cook County Board, which oversees Illinois’ largest city, voted to raise its portion of the sales tax, bringing Chicago’s combined rate to 10.25 percent from 9.25 percent.

Chicago is now right back where it was in 2008, when the county raised its rate to 1.75 percent from 0.75 percent (the same leap as the 2015 increase).

Former Cook County Board President Todd Stroger hiked the sales-tax rate in 2008, and lost his re-election bid to current Board President Toni Preckwinkle in 2010. Back then, Preckwinkle benefited from momentum against Stroger’s unpopular tax hike, which she ultimately peeled back. But her quick about-face shows Chicago politicians increase and decrease the sales-tax rate as it’s convenient.

A sales tax is one of the most transparent ways for government to raise revenues, but it doesn’t exist in a vacuum. Chicago imposes its sales tax on top of myriad other taxes residents pay, including property taxes, and other taxes and fees.

Mayor Rahm Emanuel has also revealed a plan to increase Chicagoans’ property taxes by $175 million over one year to cover city debt.

Unfortunately, other factors make it expensive to live in the city, as well. Illinois has the highest cellphone taxes in the nation. In July, City Council passed a 56 percent increase on the city’s cellphone surcharge, adding an additional $84 in taxes each year for a family of four with four cell phones and a landline. In 2013, City Council raised the tax rate on cable to 6 percent from 4 percent – the city is raising the rate again, this time all the way up to 9 percent, costing Chicagoans an extra $12 million in taxes, according to the Chicago Sun-Times. Now the city is foisting an additional 9 percent tax on online streaming services such as Netflix.

Property taxes, surcharges and entertainment taxes are all methods City Council has been using repeatedly as a method to drum up revenue to fund the city’s financial problems. But Chicago’s population is growing at a snail’s pace, gaining just 82 residents in 2014 after a decade of population decline.

Chicago leaders can only squeeze so much out of the city’s remaining residents.