Chicago is quickly becoming America's #1 tax disaster area.
Earlier this summer, the city boosted its sales tax to a stunning 10.25%. But that isn't going to be nearly enough to dig out of Chicago's huge pension hole. So now, Mayor Emanuel is going to have to ask the taxpayers to dig deeper... a lot deeper. Published reports say Emanuel is planning the largest property tax increase in modern city history. The total revenues projected from the increase are about $500 million. That would be a 60% hike over and above the effective 60% hike Chicagoans endured during Emanuel's first term as mayor. For those of you who like to do the math, that's a 156% property tax increase in Chicago under the Emanuel administration so far.
Have a nice day.
But wait, there's more! Sources tell the Chicago Tribune and the Chicago Sun-Times the plan also includes new fees for garbage hauling, new taxes on medallion taxi rides and ride-hailing services like Uber, and a new tax on e-cigarettes. Don't worry Chicago, if there's anything still left moving after this onslaught City Hall will find it and tax it too.
Here's the catch: none of this new tax money will provide newer or better services right now to the people paying for them. Nope, this is all about paying the old bills to retired workers and the bills to workers who will retire in the future. I'm not saying the police and firefighters shouldn't get what they were promised, but I am saying they were promised too much and likely won't collect it all regardless of how much more the city raises taxes. This isn't just about politics, it's about math. The money isn't there. The money never will be there. Chicago can only hope to make a dent in the pension money it owes. And raising taxes won't even do that.
Mayor Emanuel knows this, and that's why he's had to play a smoke and mirrors rhetorical game to cover up all the property tax hikes he's quietly imposed already. But this time, something's different. This time the bond ratings agencies have stepped in and are squeezing Chicago to act more responsibly. The old "scoop and toss" practice of taking current debt and delaying it in return for a higher interest rate isn't flying anymore. Moody's, S&P, and Fitch want action now. They like tax hikes to show some fiscal responsibility, but they love budget cutting even more. They shouldn't hold their breath on that second option, however.
But a funny thing happens when you ask today's young families, rich and poor, to pay more money for the same or deteriorating city services. They move out. It's not like it hasn't happened before, look at Detroit. You don't have to be a conservative to figure out that sharp tax increases really do chase middle class and rich people away, leaving fewer money-earning people to shoulder an even bigger tax burden. It's an endless cycle.
Of course, Chicago has some other options. Real pension reform for all current and future city workers has to happen. Real spending cuts in other areas have to happen. Yes, doing both of those things will sting politically. But will they really sting worse than the reaction to these monumental tax hikes? Perhaps not. Perhaps the voters and business owners in Chicago won't push back on the politicians as much as the unions. But that's a loser's bet either way.
Another option Chicago has is to sell off and privatize more of its assets and city services. Unions will push back on that too, but if a courageous mayor would simply tell them that it's that or they lose their pensions, it's possible a compromise could be reached. Chicago has already started this process under Mayor Emanuel and his predecessor Mayor Daley. It needs to step it up and do it more effectively as soon as possible.
But the elephant in the room in Chicago is education. Despite spending more per student than almost any other school system in the nation, Chicago's public school graduation rate is nothing short of a social scandal and an economic nuclear bomb that's already gone off. You can have the lowest tax rates and no public debt, but your city will never survive if 40% of the population never even finishes high school and most of the rest still can't do college work or have marketable skills. That's the reality in Chicago right now. The person who first told me of those dreary statistics and came to that overall conclusion was a billionaire hedge fund manager who just happens to run his business in Chicago.
So that's the real reason why there will never be enough people to pay the taxes in Chicago no matter how high or low the tax rates. And that's why education is the first thing that needs to be privatized in Chicago and so many cities like it. On this score, Emanuel has been right on target. He's tried harder and succeeded more than most mayors in America to increase the number of charter schools and take more of his city's kids out of the failing Chicago Public School system. Those charter schools spend a lot less on each student and studies show those children do better or at least the same as the CPS students their age. Emanuel staved off a direct attack from the teachers union in the last election, so it's time he used that political capital and increase the dismantling of the system in favor of something less costly and better in the short and long run. The bond ratings people will love that too.
In the meantime, Emanuel wants the already battered taxpayers to pay more for less. He has little choice or face the virtual death sentence of yet another bond rating downgrade. And what's left of the middle class in Chicago will have little choice but to pay more or get out.
Have a nice day.