Illinoisans pay the second-highest property taxes in the nation, according to the nonpartisan Tax Foundation in Washington, D.C. Only New Jersey residents pay more.
So it was no surprise when homeowners and businesses balked at Chicago Mayor Rahm Emanuel's proposal in September to pass the largest property-tax hike in recent memory—especially when Chicagoans are already nickel-and-dimed by other taxes and fees everywhere they turn.
When Emanuel took the reins as mayor in 2011, he was supposed to save the Windy City from financial ruin. The city’s new reform-minded leader was expected to do the unpleasant work that former Mayor Richard Daley avoided for decades—such as taking a hard stance against government unions, cutting the costs of government and fixing city-run pensions.
But in his second term as mayor, Emanuel's tough-guy persona is nowhere to be found. As the nation's third-largest city rolls toward bankruptcy with billion-dollar-plus operating deficits, nearly insolvent pensions and a junk rating, Emanuel has given up on challenging the unions and pursuing his earlier proposal: 401(k)-style plans for new city workers.
Instead, Emanuel has unveiled a set of record tax hikes as his solution. The mayor’s plan, when fully phased in, will hit Chicagoans with more than $700 million a year in new taxes and fees.
Emanuel's plan is on a collision course with Gov. Bruce Rauner's Turnaround Agenda and his call for a statewide property-tax freeze. But that doesn't matter to Emanuel supporters, who are quick to blame Daley's aversion to property taxes as a rationale for the hikes. Daley froze property taxes 17 of his 22 years in office.
Other proponents of the tax hike point to the fact that the city's effective property-tax rates—the proceeds of which pay for city operations such as public safety, road repair and snow removal—are lower than those in Chicago's nearby suburbs.
The resulting narrative from public officials is that Chicago's property taxes are now too low, and that Chicago has no other option but to raise them.
But that narrative ignores the multitude of other local taxes and fees, from “sin” taxes to red-light-camera fines, that Chicagoans are forced to pay. When all those taxes and fees are added up, Chicagoans shoulder the heaviest tax burden in the state.
And it ignores the fact that Chicago property taxes are high when compared to those in other major U.S. cities.
Chicago has the 10th-highest net residential property taxes, ahead of Los Angeles, New York, Washington and Houston, according to a study by the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence. And the same study found that Chicago has the third-highest commercial property taxes when compared to the largest city in each state, behind only New York and Detroit.
The mayor’s tax-hike proposal will only make Chicago less competitive and, as an unintended consequence, will drive a growing number of Chicagoans from the city.
Nickel-and-dimed
Daley was no fool. He knew that property taxes are among the taxes most hated by residents. That’s why he opted for a smorgasbord of smaller taxes during his tenure, like bottled-water taxes and incremental utility fees, hoping Chicagoans wouldn’t notice the overall amount they were being forced to pay.
Emanuel has done the same. He hasn't raised property taxes over the past four years, instead opting to hike other taxes and fees. In fact, in the last two years alone, the mayor has added 12 new taxes, ranging from a 10% increase in parking fees to a 50% increase in amusement taxes.
Daley and Emanuel’s combined nickel-and-diming of Chicagoans since 1994 has pushed other local taxes and fees, which now account for nearly three-quarters of the city's budget, to grow at more than 2.5 times the rate of inflation.
Unfortunately, Daley and Emanuel played the same kind of tricks on the city's nearly bankrupt pension funds. Rather than fund pensions, both Daley and Emanuel spent the money to boost payrolls instead, raising city-worker salaries at an unsustainable pace. That pushed up the city's operating costs and helped inflate the city's pension liabilities.
Now the city can't meet its obligations, and nickel-and-diming city residents will no longer cut it.
With no resolve to take on the unions and open up the city’s labor contracts, Emanuel has taken the easy route—hitting up taxpayers.
False choice
In his 2016 budget, Emanuel presented Chicagoans with a stark choice: Accept a record property-tax hike proposal or watch the city become "unlivable.”
Without the hikes, he said, 2,500 police and 2,000 firemen would be laid off, garbage collection would be reduced, potholes would go unrepaired and the city's rodent population would grow unchecked.
But the “tax hike or doom” scenario the mayor is offering Chicagoans is a false choice. There are other solutions to the city’s fiscal crisis—reforms that Emanuel himself used to champion.
When Emanuel first took office, he promised to innovate and improve the way city services are delivered, creating efficiencies that would change city government for the better. He promised to give workers choices in retirement, starting with moving all new workers into 401(k)-style programs. The mayor also promised to take on the unions to enact desperately needed labor reforms.
Those reforms are the real solution to Chicago’s financial mess, but Emanuel has failed to deliver on all three fronts.
Instead, the mayor has resorted to using fear tactics to get his tax hike passed.
This doesn’t mean Chicago is beyond saving. Chicago is still very much a world-class city, with great potential for future growth. But it will take the very reforms Emanuel abandoned in his early years as mayor to set Chicago back on the right path.
To fix Chicago, taxpayers need the no-nonsense Rahm Emanuel—not the one who’s willing to stick them with hundreds of millions of dollars in additional taxes with no real reforms in sight.
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