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No ‘Large’ Property Tax Hike In Lightfoot’s 2020 Budget — But It Relies On State To Fill Gap

If state lawmakers balk at the plan, a property tax hike will be necessary to plug the hole, the mayor said.

Mayor Lori Lightfoot with CPS CEO Janice Jackson, Ald. Michael Scott Jr. (24th) and Ald. Chris Taliaferro (29th).
Pascal Sabino/ Block Club Chicago
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CITY HALL — Aldermen across the political spectrum breathed a sigh of relief Wednesday as Mayor Lori Lightfoot unveiled an $11.6 billion spending plan for 2020 that does not ask them to hike taxes on Chicago property owners to fill the city’s $838 million budget deficit.

Instead, Lightfoot’s plan calls for the city to cut $537.6 million while raising a host of taxes and fees to generate $352.2 million. But $50 million in new revenue relies on state lawmakers allowing the city to change the way it taxes  property sales. That proposal would offer relief for those who sell homes for less than $500,000, while increasing the tax on the sale of more expensive properties.

“The biggest concern has been alleviated today, which was the concern for a huge property tax increase that would affect lots of people in the city of Chicago,” said Budget Committee Chair Ald. Pat Dowell (3rd). “We’re not going to see that now.”

Dowell will lead 10 days of budget hearings that start Monday and she promised to dig into the budget for “every single department in more detail.”

Aldermen’s relief may be short-lived. Lightfoot was clear in her speech that if state lawmakers balk, a substantive property tax hike would be necessary to plug the hole. City finance officials said they are developing contingency plans if state lawmakers do not act during the Fall Veto Session that begins Monday.

Lightfoot presented her first spending plan as “an expression of our shared values and a progressive blueprint for our shared future.”

RELATED: Read Lightfoot’s full budget speech

However, nine members of the City Council’s Progressive Caucus kicked off their morning by joining the protest that snarled streets throughout the Loop, carrying a banner that read “Chicago is not broke — the city’s priorities are.”

Ald. Anthony Beale (9th) said he was skeptical of some of the mayor’s claims.

“This was a pie-in-the-sky type of budget,” Beale said. “I don’t think this budget is balanced because we have to wait to see what happens in Springfield.”

Beale said the mayor should not expect the City Council to rubber stamp the budget as it often did under former Mayor Rahm Emanuel, warning of late nights to come.

Fitch, one of the three big Wall Street ratings agencies, said its analysts remain concerned about the growing amount of money the city owes to its pension funds. Approximately a third of the city’s budget gap is due to the bill for the city’s pensions, which will jump 31 percent in 2020 due to a change in state law that ties payments to actuarial estimates. 

“Fitch will not consider the city’s budget to be structurally balanced until recurring revenues match recurring expenses including actuarial funding of pension contributions which cannot begin to be achieved until the pension ramp is surmounted,” said Arlene Bohner, the head of state and local government ratings at Fitch Ratings.

As the mayor spoke, thousands of Chicago Teachers Union members and their supporters shut down much of the Loop for much of the morning, demanding that Lightfoot meet their demands for increased staffing and smaller class sizes.

Although the boisterous protest could be heard from City Hall, Lightfoot did not mention the strike in her remarks. The strike is set to enter its sixth day on Friday.

Several aldermen said they were disappointed that Lightfoot’s plan did not call for the city’s mental health clinics closed by former Mayor Rahm Emanuel to be reopened. Instead, Lightfoot unveiled what she called a new framework for mental health services that calls for $9.3 million in new spending.

In addition, a fight is brewing over the push to raise Chicago’s minimum wage to $15 an hour in 2021. The state’s minimum wage will hit $15 per hour in 2025, but that is too far away, according to advocates.

Lightfoot’s proposal would continue to allow employers to count tips on top of an hourly wage of $6.40 to ensure their workers are paid the minimum hourly wage, even though the ordinance pending before the City Council would end that exemption.

RELATEDDebate over minimum wage hike to $15 by 2021 focuses on tipped workers

Several progressive aldermen said if the mayor thought that provision would entice them to vote for the budget, she was mistaken.

Ald. Sophia King (4th), the author of the proposed minimum wage hike, objected to the mayor’s proposal in a statement issued by the Raise Chicago Coalition, which has been working to pass the hike.

 “We should not tie the passage of the budget to passage of a minimum wage ordinance,” said King, who was “disappointed that the mayor failed to explicitly commit to raising [tipped workers] wages.”

Those criticisms make it clear the city’s financial woes have trapped the mayor, who won all 50 wards by promising to usher in a new progressive era, between a rock and a hard place.

City officials ask state leaders for help

In addition to asking for a change the way the city levies its tax on the sale of properties, Lightfoot again called on state lawmakers to change the tax and fee structure of a planned Chicago casino to make it more attractive to investors and operators.

“And if we are able to work with Springfield to approve these two measures, Chicago will have all four of our pension funds reach that level and be on the path to structural balance by 2022,” Lightfoot told aldermen during her speech that lasted nearly 45 minutes.

Gov. JB Pritzkerwill encourage the General Assembly to give the mayor’s proposals their full consideration during the veto session,” according to spokesperson Emily Bittner.

“Cities around the state face enormous fiscal challenges, and the governor believes that balancing Chicago’s budget is an important step in stabilizing our overall fiscal health to benefit all our state’s residents,” Bittner said.

However, it is unclear if state lawmakers will lend Lightfoot a hand during the brief Fall Veto Session as many look ahead to the vote on whether to change the state’s flat income tax to a graduated levy set for November 2020.

Lightfoot is also counting on $163 million in reimbursements from the federal government for ambulance rides through the Illinois’ Department of Healthcare and Family Services.

The city will move to a “cost-based fee system” that will charge insurance companies for the “full cost” of the emergency transportation, while “providing relief to individual players,” according to a city fact sheet.

However, the governor’s office is “waiting for confirmation from the federal government that they will authorize this reimbursement,” said Jordan Abudayyeh, a spokesperson for Pritzker.

$300 million TIF surplus declared

Lightfoot’s budget declares a $300 million surplus in the city’s tax-increment financing districts, the largest in Chicago’s history.

That windfall will add $31.4 million to the city’s bottom line and $163 million to the Chicago Public Schools budget.

Those additional funds are expected to be used to cover — at least in part — the cost of raises and new proposals called for by a final agreement between CPS and the Chicago Teachers Union, which went on strike on Oct. 17.

Lightfoot’s declared surplus in the city’s TIF districts is $125 million more than the 2019 surplus, fueled in part by a 12.5 percent jump in the equalized assessed value of all properties in the city as part of the 2018 reassessment.

The jump was also fueled by the $588 million property tax hike approved in 2015 by the City Council to shore up the city’s police and fire pensions as well as a development boom in the Loop and North Side.

RELATED: TIFs claim 35 percent of city property tax revenues: report 

Besides the proposed real estate transfer tax hike, which would increase the tax on the sale of a property worth $10 million or more to 3 percent, Lightfoot’s largest proposed tax hike is targeted at Uber and Lyft, which Lightfoot blames for creating gridlock Downtown.

Lightfoot took direct aim at ride-hailing companies during her speech, defending her plan to raise $40 million by imposing new taxes on ride-hailing services. The measure is also designed to reduce the number of single-passenger trips into and out of Downtown and the Near North Side.

“I reject — and you should be deeply skeptical — of the false narrative rideshare companies are spreading,” Lightfoot said. “The multi-millionaire owners of those companies have had essentially free reign in Chicago. And if they cared as much about equity as they say, they would cut their drivers in on a bigger share of profits, improve their working conditions, and not pass their costs on to them.”

Representatives of ride-hailing giants Uber and Lyft said the mayor’s proposal will disproportionately hurt South and West side residents who rely on ride-hailing to get around and to earn income.

“There are ways to reduce congestion and raise revenue that don’t include an 80 percent tax increase on rides nowhere near downtown,” said spokesperson Kelley Quinn. “Those traveling in transit-rich neighborhoods should pay more in taxes than those with more limited options.”

Behind-the-scenes changes proposed

Lightfoot’s spending plan also proposes a number of operational changes behind the scenes at City Hall in an effort to “ensure taxpayers get the greatest value for their dollars, while still receiving the highest quality service.”

The city will save $148.7 million as compared with 2019 through the use of “zero-based budgeting” which forced each department to start from a $0 budget and justify each line item as “essential to the core service mission of every department.”

In addition, the city will save $19.7 million by eliminating approximately 3,100 vacant positions, Lightfoot said.

Lightfoot’s proposal slashes another $141 million from the deficit through “improved fiscal management” that will change how the city handles its day-to-day cash flow.

Ald. Carlos Ramirez-Rosa (35th) said he was champing at the bit to see the details behind those numbers.

“Some of it sounds too good to be true,” Ramirez-Rosa said. “I’m eager to see how the mayor finds these savings and efficiencies without adversely impacting city services. That sounds a little fantastical. If it was that easy, why didn’t Mayor Emanuel pursue it before?” 

An effort to crack down on unpaid bills is expected to save $25 million, while the city hopes to save $22 million by terminating $1.4 billion worth of unused lines of credit.

City officials have also unveiled plans to generate $20 million from a 0.25 percent hike of the city’s restaurant tax.

Although cannabis will be legal on Jan. 1, the city expects to only take in $3.5 million in 2020, as dispensaries open across the city and the program takes root.

The mayor’s budget also calls for revenues from the city’s parking meters to rise by $7 million and for “existing service and sales taxes” to grow $37.2 million.

Lightfoot also expects to close the largest single chunk of the budget deficit — $200 million — by refinancing $1.3 billion of the city’s debt.

New spending proposed

While Lightfoot did not propose hiking property taxes to help close the budget deficit, she did propose raising the Chicago Public Library’s portion of the property tax by $18 million to reopen the branches on Sundays.

Emanuel closed the libraries on Sundays in 2012 as part of an effort to close the massive budget deficit he confronted during his first term.

In addition, Lightfoot proposed spending $9.3 million to create “a new framework for mental health services” that would not reopen the six mental health clinics closed by Emanuel in 2012 as demanded by aldermen.

Anders Lindall, a spokesman for AFSCME, the union that represents mental health workers and has pushed for the clinics to be reopened, said leaders were very disappointed by the mayor’s proposal.

“Instead of keeping her commitment to reopen shuttered city clinics, the mayor appears to be heading down the same path that has left thousands of city residents and entire neighborhoods without needed services: This budget gives millions more to private providers with little accountability or oversight,” Lindall said. “Most of these private agencies already have wait lists and charge co-pays, both of which are significant barriers to access for individuals in need.”

Lightfoot also proposed spending an additional $9 million to expand “street outreach” programs by hiring more community-based workers.

The mayor also announced that the city would reduce the water rates for approximately 20,000 homeowners with incomes 150 percent below the federal poverty level.

RELATED: Lightfoot budget to boost housing funds by $10M, but homeless advocates say it’s not enough

The budget is scheduled to be approved Nov. 26.