When Chicago Mayor Rahm Emanuel proposed a 2016 budget with one of the largest property taxes in the city’s history many residents and politicians were taken back at the size – $588 million dollars – and many alderman reluctantly voted for it, some openly critical, and others feeling that it was the wisest course, gave it public endorsement. With the final vote of 36-24, it was hardly a mandate, but some saw it as an act of desperation, mostly to make a state constitutionally required pension payment to police and firefighters for a cash strapped city.
David Fernandez, a public finance attorney, with Buchanan Ingersoll & Rooney, who specializes in counseling clients on a wide variety of capital markets, and municipal default workouts agreed to an interview to assess what, what could transpire, now that much of the Emanuel plan is beginning implementation. And, what struck him most, is that residents, and city hall observers should recognize that the massive property tax, especially with the “mom and pop break” on properties valued at less than $250,000, is one that “is mostly on the backs of the commercial sector,” but he stresses,” they can get fed up and if the hit takes too much [out of them] then they can later vote with their feet and leave; businesses are not married to the city.”
As Crain’s Chicago noted, this is also close to political suicide, for Emanuel, and they noted “The mayor is really, really whacking—in fact, triple-whacking—the very people who largely are responsible for electing him to a second term. That’s the greater downtown and the neighborhoods dependent on its job-creation machine for their own economic health. Those areas will have to dig deep and pay a wildly disproportionate share of that $588 million.”
Citing examples of cities that this “migration” could take them to, he noted nearby Detroit, and in the Southwest, Atlanta, who are in the process of reinventing themselves. But, most of all he wants city officials to know that “if they leave, the resulting pressure on the return of an investment can create a vacuum.” But, overall Fernandez notes that the new Chicago budget is in danger “because all of the eggs are in one basket.”
Put even more succinctly, it lacks the outline of a true budget, and with a one shot stroke – the property tax – it can endanger the business community, but also the “nickel and dime” taxes on [ride service] Uber, e-cigarettes, and the garbage collection fee, all of which are in their truest sense, regressive taxes, that not only take more from lower income people, but also are easy enough to get around, and eventually will offer substantially less revenue.
Fernandez is not alone on his criticism, and much like Laurence Msall of the Civic Federation who feels that the lack of a true budget “does not go far enough to address the city’s financial crisis and may be too dependent on help that might not come from deadlocked lawmakers in Springfield.”
The lack of a comprehensive plan has some lawmakers asking for more cuts; supporting this is Ald. Harry Osterman who said, “I question are we doing everything in our power to shrink the size of government before we go and ask the homeowners to pay more, and I can’t say in good conscience that we have.”
Fernandez agrees and suggests that the city “get rid of duplication, create a new layer of accountability, emphasize cost effectiveness, and create a fiscal oversight board.”
He also likens the current budget to “putting a finger on the dyke to keep it from leaking,” and says that there must be a better way, but insists that Chicago “cannot expect the federal government to step in with a life raft.” What is needed, he says, is “a fiscal agency to consolidate debt, free up capital, pay off and restructure debt.” In an earlier interview, he noted that New York City did this in the 1970s and was able to extricate itself from similar problems.
One possible solution to working with the Illinois state legislature, and Gov. Bruce Rauner, might be a scenario like this:: “What if the mayor would say to them, ‘We have a fiscal plan to increase revenue and restructure debt.’” A move that the rookie governor might have to take a closer look at, he claims.
A notable factor in the mayor securing enough votes for the budget to pass, was some “horse trading” with city council members, such as Ald. Tunney, and Smith for more police, school improvement and possible economic sector rebates, But as Fernandez remarks, “This is a way to get something passed: get enough votes, and a few extra police cars in the aldermen’s neighborhood. As for the rebates, this is essentially a throw-away til the reset button is hit, much like the tax on Uber.”
As many seasoned observers have noted, the pension payments for the fire and police were legally binding for the city, and while the property tax can make the payment, this budget does nothing for restructuring the city’s debt.
A notable area of concern in the budget is the allocation of $45 million, for the Chicago Public Schools, especially problematic in the light of the federal corruption charges brought against former CEO, Barbara Byrd Bennett, in a kickback scheme from her former employer in exchange for a $20.5 million contract with the city for school principal training. Many alderman balked at its inclusion and have renewed calls for greater oversight of CPS. However, in the absence of an established and dedicated revenue stream, the desire for a much needed balance between the two demands remains. This has become especially true in light of their projected $1.1 billion deficit, which has already contributed to many cuts in programs in the arts and languages. Factored into this are more pensioners drawing from the fund, that are paying in.
Structural changes, notes Fernandez, have to “be done outside of an election cycle,” which is why the interim period is so essential for action. But, most significantly, finances can have a cyclical swing that can affect partisan control of local governments, as seen in the 1970s in one New York County that changed from Republican to Democratic control, after more than a generation.
He also notes that members of the Chicago Progressive Reform Coalition, especially its younger members such as Ald. Carlos Ramirez-Rosa, might do well to utilize social media as an agent of change for fiscal reform, to foster the momentum that is essential, because making all of “the right noise is needed, the more it gets, the greater the change, as we can see with Donald Trump being propelled to to the forefront of the political arena.”
What won’t work are more of the regressive taxes, such as the by now, infamous red light cameras that are not effective in the long run, and which Fernancez claims are “money grabs, they affect everybody, and while it is an attempt to generate revenue, affect only a small proportion of the population,and those that will be disobedient, will refuse to pay; it’s an endless method with no end in sight.”
With 2016, just around the corner, how the budget continues to play, or doesn’t play, will be a factor in how the city attempts to handle not only finances, but commercial investment, public education, and maybe more pension payments. Only time will tell.