Chicago needs so much new revenue to solve a $30 billion pension crisis and shed its junk bond rating, it’s time to consider imposing a first-ever city income tax, according to one of Mayor Rahm Emanuel’s staunchest City Council supporters.
Ald. Joe Moore (49th), newly-elected chairman of the City Council’s Housing Committee, acknowledged a city income tax that applies to all wages earned in Chicago — whether by city residents or suburbanites — would need to be authorized by the Illinois General Assembly.
Unlike the state income tax, which is based on a flat rate, Moore favors a graduated city income tax. If it’s legal, that would make it a little less controversial, but not much.
But Moore said Chicago is in such desperate need of new revenue to shore up police, fire and teacher pension funds and restore its bond rating, no one tax increase would generate enough money to solve the entire problem.
“You can do a casino here and a fee increase here. But ultimately, we’re gonna have to make some tough decisions. We’ve got to look outside the box and be creative and courageous,” Moore said.
“A progressive city income tax aimed at those who can most afford to pay — so we don’t add further burdens to working and middle-class folks trying to get by — is one idea that’s an alternative to relying solely on a property tax increase. And it’s more fair. You’d be taxed on your ability to pay vs. how much your property happens to be valued at.”
Emanuel’s quest for the land-based, city-owned casino that has eluded Chicago for decades is caught up in the state budget stalemate between rookie Republican Gov. Bruce Rauner and Democratic legislative leaders over Rauner’s demand for anti-union, pro-business reforms.
So is the mayor’s plan — already approved by the House and Senate — to save Chicago taxpayers $843 million over five years by giving the city 15 additional years to ramp up to 90 percent funding levels for the police and fire pension funds.
With a $634 million payment to the teacher pension fund due in just over two weeks, the General Assembly hasn’t even entertained the issue of teacher pension reform.
Against that bitter backdrop, Moore was asked how he could possibly expect the Legislature to authorize a city income tax.
“We can’t even get simple things out of the General Assembly. It would be a tall order. But, I would imagine if the mayor was supportive of it, and the City Council was open to it as an alternative to relying solely on the property tax, perhaps we could get it through,” the alderman said.
Noting that a property tax freeze is one of the items on Rauner’s “Turnaround Agenda,” Moore said, “If it wouldn’t eliminate the possibility of relying on a property tax increase, it would certainly greatly reduce it.”
The mayor’s office responded to Moore’s suggestion by cracking the door open.
“As always, we will look for reform before looking at revenue. However, Mayor Emanuel appreciates the alderman’s suggestion, and he welcomes all ideas from City Council because the problem we face is a big one,” Kelley Quinn, the mayor’s communications director, wrote in an email to the Chicago Sun-Times.
Four years ago, Inspector General Joe Ferguson offered Emanuel a $3 billion roadmap to financial stability that included everything from a city income tax, commuter tax and tolls on Lake Shore Drive to privatizing garbage collection and converting 20 percent of all fire suppression apparatus to ambulances.
At the time, Ferguson estimated that Chicago could raise $500 million a year by following New York City’s lead and imposing a one percent city income tax. A commuter tax imposed only on suburbanites could generate $300 million, the inspector general said.
Emanuel dismissed both ideas.
Last year, the mayor ruled out a city income tax again while turning up the heat on then-Gov. Pat Quinn to sign a bill that would have set the stage for the mayor’s plan to raise property taxes by $250 million over five years to save the Municipal Employees and Laborers pension funds.
At the time, Quinn was balking at the property tax hike and insisting that Emanuel find another way. Quinn ultimately agreed to sign the bill, only after Emanuel substituted a 56 percent increase in the monthly surcharge tacked on to telephone bills in Chicago for the first-year increase.
“Everybody has to give something so nobody is asked to give everything. And that’s why it was, in my view, a responsible plan. Other people will have ideas. One that I reject is the idea of a city income tax. That’s not the right way to go,” the mayor said then.
Moore is the latest in series of Chicago aldermen to step forward in recent weeks and suggest controversial revenue ideas previously dismissed.
Ald. Roderick Sawyer (6th), newly-elected chairman of the City Council’s Black Caucus, proposed suburban-style garbage collection fees. Other aldermen have talked about the possibility of raising the city sales and gas taxes, authorizing video poker in Chicago and even about the possibility of legalizing and taxing recreational use of marijuana.
Asked about a city income tax, Moore’s colleagues were lukewarm.
Ald. Will Burns (4th), a former state representative, said he’s certain the Illinois Constitution prohibits graduated income taxes of any kind. That means a city income tax would end up hitting poor people the hardest, he said.
“We have to have a flat income tax. So, at one level, it becomes a regressive tax. And on the other level, it serves to make Chicago a bit of an outlier vis-à-vis taxation in the rest of the state. And we’re already an outlier given our property tax system when it comes to commercial and industrial property,” said Burns, chairman of the City Council’s Education Committee.
“It’s a tax that would only apply to Chicago and wouldn’t apply across the state. A better thing to do would be expand the sales tax [to] services on the state level and also have a Chicago pick-up on that. That makes a lot more sense than doing a [city] income tax.”
Transportation Committee Chairman Anthony Beale (9th) said a city income tax cannot be dismissed.
“I’m not saying there’s anything appealing about it. I’m just saying that’s something we have to look at. We can’t turn our backs on anything right now. We have to look at everything. There’s not one revenue source that will solve all of our problems. We need to get it from a variety of sources,” Beale said.
Ald. Pat O’Connor, the mayor’s City Council floor leader, said he wants to wait and see how much Springfield decides to help Chicago before entertaining any local tax increases — new or old.
“I don’t see that a city income tax is any different than a city property tax increase,” O’Connor said.
“It’s a less regressive tax. I’ll grant you that. But, no matter how you color it, it’s still the same tax base. They can only bleed so much before they die. We’d be better off trying to figure out how much we need before we start throwing other things into the mix.”
Even if Rauner ultimately signs the police and fire pension bill, Chicago taxpayers would still be on the hook for $619 million in payments to the two funds next year — more than double the current payment.
Emanuel also needs to close an operating shortfall pegged at $300 million long before the drop to a junk bond rating forced the city to pay tens of millions in refinancing costs, higher interest rates and penalties. And he must find another $50 million to cover increased payments to the Municipal Employees and Laborers pension funds in Year Two, when the telephone tax hike will run short.
The Chicago Public Schools face a $1.1 billion shortfall and a $9.5 billion pension crisis that threatens the on-time opening of Chicago Public Schools.
The Chicago Teachers Union’s contract expires on June 30. CTU President Karen Lewis has promised to lead her members out on strike for the second time in three years if teachers don’t get a fair contract.