Latest Post | Last 10 Posts | Archives
Previous Post: From “James Bond” to media hound in less than a year
Next Post: Reform and renewal
Posted in:
* Greg Hinz writes about the costs of Chicago pension reform…
Some critics want to tap the city’s tax- increment financing system rather than raise property taxes $50 million each of the next five years, as Mr. Emanuel’s plan requires.
TIFs are a big, juicy target for those who want to protect homeowners. The city’s 153 TIF districts have a total of $1.7 billion in the bank and generate another $400 million-plus each year.
But roughly $1.5 billion of the $1.7 billion is already committed for projects such as an $800 million school construction plan announced a few years ago, a $15 million Chinatown library, an $18 million Albany Park library and a $12 million streetscape project for Devon Avenue, says Budget Director Alexandra Holt. She didn’t detail all $1.5 billion, but I have no reason to doubt her. With a couple of exceptions, the money is going to neighborhood projects, not downtown handouts.
Similarly, much of future years’ receipts are committed for things such as a $50 million el station at Cermak Road, a $9 million industrial project in Pilsen and debt payments. And total receipts are beginning to drop quickly, as TIF districts with a legal 23-year life begin to expire, like the huge $120 million-a-year Near South TIF.
Ironically, because of the tax hike for pensions, the TIF districts are expected to produce about $20 million in additional revenue, Ms. Holt says. The city will declare that money a surplus and apply its $4.6 million share to pensions, potentially softening the blow of the property tax increase.
* A recent Sun-Times editorial also looked at various options…
What about a Chicago casino, which also requires state approval? That’s worth pursuing but can’t be counted on for now. If lawmakers ever approve, casino revenue is years away and inherently unpredictable. At its peak, perhaps five to seven years into its life, revenue could reach $80 million to $120 million, city officials tell us. […]
The Chicago Teachers Union and others have pushed a financial transaction tax and eliminating tax-increment-financing districts, both of which sound good on paper but have more downsides than pluses.
State actions: Emanuel has advocated for expanding the narrow list of items subject to the sales tax to cover services (think dry cleaning and hair salons). If done right, this could generate more revenue overall while also lowering the tax rate. Quinn is opposed, but an expanded sales tax that matches the modern economy could benefit the entire state. It’s also what most states do. Lawmakers also could increase the share of state income tax revenue shared with municipalities, including Chicago. That was cut in 2011, costing Chicago more than $400 million. The downside, of course, is that the state needs the money.
* Meanwhile, the Chicago Tribune has editorialized strongly in favor of the city’s pension reform bill…
The Illinois General Assembly delivered a special package Tuesday to the Chicago City Council: a pension fix that probably requires aldermen to raise property taxes — less than a year before they stand for re-election.
Given the terrible finances of the city’s pension funds, Gov. Pat Quinn has no responsible choice other than to sign the bill, and the aldermen have little choice but to raise taxes.
So, to sum up, the Trib is in favor of higher property taxes to help solve the city’s historic pension underfunding problems, but totally against an income tax hike to help solve the state’s historic pension underfunding problems.
Go figure.
* And that leads us to this Eric Zorn post listing four reasons why a Chicago income tax should be considered…
But if the alternative is a significant decrease in city services leading to a deteriorating quality of civic life, a city income tax is among the least objectionable options for balancing the books.
* The city’s media ran stories last week about how Mayor Emanuel had completely ruled out the idea…
Mayor Rahm Emanuel on Wednesday ruled out creating a city income tax as a way to shore up the city’s municipal and laborers’ retirement funds while describing the $250 million property tax increase he wants to pay for the pension changes as “a measured way, a responsible way to address the question.”
* Glossed over in all of this is an important point noted in that above-linked Sun-Times editorial…
Emanuel is opposed to a city income tax, which must be approved by Springfield. [Emphasis added.]
* From the Illinois Constitution…
SECTION 6. POWERS OF HOME RULE UNITS
… A home rule unit shall have only the power that the General Assembly may provide by law (1) to punish by imprisonment for more than six months or (2) to license for revenue or impose taxes upon or measured by income or earnings or upon occupations.
* Paul Green has the last word…
Illinois governments at all levels are facing financial disasters and yet various “stakeholders” (I love that word) are bickering as if time were on their side. These stakeholders hope that somehow pension debt and overdue bill payment will be “hoped” away.
The specifics of these crises in Springfield and Chicago are economically complicated, politically toxic and do not lend themselves to a 30 second political commercial. However, the general parameters of the problem are not so complicated. Governments have promised more than they could deliver.
Incoming revenue does not meet expenditure needs, and to resolve these issues everyone in Illinois (Chicago included) has to lose something.
In short, this is a math exam, not an essay test.
posted by Rich Miller
Monday, Apr 14, 14 @ 9:53 am
Sorry, comments are closed at this time.
Previous Post: From “James Bond” to media hound in less than a year
Next Post: Reform and renewal
WordPress Mobile Edition available at alexking.org.
powered by WordPress.
===In short, this is a math exam, not an essay test.===
Amen Paul Green!
I wish every pol realized this.
If it doesn’t add up, don’t waste our time with it.
Comment by Walker Monday, Apr 14, 14 @ 10:07 am
I don’t buy Emanuel/Hinz’ math. If $1.5 billion of the $1.7 billion is committed, then $200 million is not committed. That $200 million would eliminate the need for the first couple years of property tax increases.
So how much TIF money is available in future years - perhaps $300 million/year after the big Near South TIF expires.
“much of future years’ receipts are committed for things such as a $50 million el station at Cermak Road, a $9 million industrial project in Pilsen and debt payments.” - if the second biggest example is just $9 million, I’m skeptical as to how much of the $300 million per year is committed beyond 2018.
Comment by Robert the Bruce Monday, Apr 14, 14 @ 10:11 am
“The Chicago Teachers Union and others have pushed a financial transaction tax and eliminating tax-increment-financing districts, both of which sound good on paper but have more downsides than pluses.”
I wish the Sun Times editorial board briefly stated what are the downsides to a financial transaction tax. There are downsides to all taxes, including raising property taxes.
Comment by Grandson of Man Monday, Apr 14, 14 @ 10:15 am
Simple solution: Convert police and fire pensions to 50% of the avergae of their highest 4 years salary out of the last ten, after 30 years of work.
FYI I am generalizing the formulas here
he above is the average state worker salary.
The current fire police formula is 80% of your last day pay after 20 years. it is way way to generous, particualry for the funding level. Given the lack of income tax on retirment most fire and police retire with take home the same as when they were working. Add in some overtime or other sweetners to jack up last day pay, and it really gets out of control. Antecdotally I know several who completed one full pension with sya the State, then went to work for a city or county for another 20 years and eanred a second full 80% of last day pay pension. effectively retiring on two full salaries!
Comment by Ghost Monday, Apr 14, 14 @ 10:15 am
Regarding Mr. Zorn’s arguement for a city income tax, would this include telecommuters? If a CIT is enacted, watch the number skyrocket. And I do see a growing number of reverse commuters - if Chicago enacts a CIT, expect Oak Brook, Schaumburg et. al to do the same.
Comment by Darienite Monday, Apr 14, 14 @ 10:16 am
The legacy of 22 years of Richard M. Daley.
It should be noted that the City Council ceded Daley the power to manage city finances by decree.
Daley had the unanimous support of the Chicago “business community,” bigfoot contributors and newspaper editorial pages.
And Chicago voters elected him time and again, with increasing percentages of the vote. In his last election, Daley received 79% of the vote.
No victims here. You got what you wanted — and hard.
Comment by wordslinger Monday, Apr 14, 14 @ 10:18 am
Dear Ghost, what pension are you talking about for police or fire that gets to 80% after 20 years. That is false.
Comment by Anon Monday, Apr 14, 14 @ 10:31 am
and, the math is quite unforgiving
Comment by steve schnorf Monday, Apr 14, 14 @ 10:38 am
@Robert the Bruce - you make a good point. The property tax hike is supposed to generate an additional $50 million per year, yet there is $200 million sitting in the bank?
Even I can do that math.
I also cannot help but wonder what the current situation would look like had that $400 million annually, or even just 1/2 half that, had been applied to the city’s pension funds rather than whatever else there is to show for it. Or, as @wordslinger subtly reminds us, if a portion of the $1.2 billion parking meter deal in 2009 was put towards pensions rather than whatever else it went towards.
The cookie jar is just about empty, but our leadership stubbornly refuses to give up their cookie addiction.
Comment by Formerly Known As... Monday, Apr 14, 14 @ 10:47 am
@grandson
“I wish the Sun Times editorial board briefly stated what are the downsides to a financial transaction tax.”
They’re pretty obvious, Grandson. The institutions move somewhere where the they don’t have the transaction tax, but can attract top labor due to proximity and environment. Most financial institutions can operate from anywhere, and most major financial institutions have already left the state and city. The BOT is the big cash cow here, and I have no doubt they’d move elsewhere if such a tax was enacted on their transactions.
I can remember a time when Chicago was one of the main financial centers of the world. We had the First National Bank, Continental bank and a plethora of other such institutions on LaSalle street. When they consolidated and merged in the 80s and 90s, they decided that Illinois was NOT the place to be, and left.
There were reasons. The tax and corruption atmosphere simply wasn’t worth the skilled employee benefits. Chase, BOA and the rest simply didn’t need Chicago, so they were gone. Wanna drive out what’s left? Just pass this tax.
Comment by Arizona Bob Monday, Apr 14, 14 @ 10:48 am
===We had the First National Bank, Continental bank and a plethora of other such institutions on LaSalle street.===
Are you referring to Continental Illinois? The WaMu of the 1980s? I don’t think Chicago’s business climate made them leave. It was the FDIC takeover when it failed that did them in.
Comment by thechampaignlife Monday, Apr 14, 14 @ 11:01 am
The city persists in acting as if TIF boundaries are sacrosanct for all 23 years of the TIF. They can be amended at any time. Elmhurst did this 20 years ago.
Any TIF with no active projects should be cut automatically. Wilson Yard is a great example of a huge TIF and next to no new activity. Reducing the EAV amount in TIF districts would greatly reduce property tax burden for most people in Cook County
Comment by JeffingingChicago Monday, Apr 14, 14 @ 11:06 am
– The institutions move somewhere where the they don’t have the transaction tax,–
Like low-tax London or New York? NASDAQ doesn’t even have a trading floor, yet they’re in NVC.
As far as your history lesson on the banks, well, it’s a great alternative universe yarn.
Read up on the rise of reciprocal interstate banking, starting in the 80s, and then the federal Interstate Banking Act of 1994.
You do now the four largest bank holding companies in the United States — JPMorganChase, Bank of America, Citigroup and Wells Fargo — now hold 40% of U.S. customer deposits?
But I’d be fascinated to hear you explain how Chioago’s “tax and corruption” atmosphere was the reason for bank mergers. You must have some compelling evidence.
Comment by wordslinger Monday, Apr 14, 14 @ 11:07 am
Are those TIF committments for $1.5 billion constitutionally protected?
Comment by ejhickey Monday, Apr 14, 14 @ 11:23 am
@Arizona Bob:
You seem to have a real disdain for Illinois. Do you ever have anything good to say or do you spend your time thinking of all the ways you can to badmouth the state? I’ve lived here all my life and find it to be a pretty good place to live. The business climate is anywhere near as bad as you proclaim it to be. There can always be improvements but it isn’t the doomsday you portray.
Comment by Demoralized Monday, Apr 14, 14 @ 11:33 am
“isn’t anywhere near as bad”
Comment by Demoralized Monday, Apr 14, 14 @ 11:33 am
“everyone in Illinois (Chicago included) has to lose something.” If Paul Green means that the only “shared sacrifice” is through the tax and not through stealing money from retirees, he is absolutely right and in line with the Illinois constitution.
Comment by anon Monday, Apr 14, 14 @ 11:39 am
TIF districts that generate TIF funds are generally strictly limited to development kinds of costs. The overrun, rebated back to the taxing districts is different and goes to general revenue that can be used for anything. No one is suggesting using TIF funds for pensions, are they? I honestly don’t see how you could do that. Eliminating TIF districts as they expire and curbing new ones would leave more property on the tax rolls. Is that what some see as a solution? I’m a little confused about what folks are suggesting TIF as a pension solution are proposing. I know the interpretation of what is TIF spending eligible has seen some creative approaches, but I’m not sure how using TIF for pensions directly could ever qualify.
Comment by A guy... Monday, Apr 14, 14 @ 11:51 am
If a city income is passed in Chicago , would it apply to retirement income , unlike the Illinois Income tax. It seems only fair that it should since many retirees voted for Daley election.
Comment by ejhickey Monday, Apr 14, 14 @ 11:51 am
I don’t see a financial transaction tax happening, anywhere, anytime soon.
It’s been talked about for decades, but the powers-that-be have always knocked it down. I don’t think that the financial sector has lost any power over public policy in recent years.
Still, to talk about a miniscule financial transaction tax as some game-changer is just silly, day one, Econ 101.
It would be a very small cost of doing business. But already, the great financial centers of the world — New York, London, Zurich, Singapore — are among the most expensive cities to do business.
Those cats like the finer things of life. They’re not moving to Tampa or Ft. Worth to escape some silly taxes.
Comment by wordslinger Monday, Apr 14, 14 @ 11:54 am
I read a Reuters report citing Moody’s estimating that the $98 million Colorado expects to raise in 2014 with its 15% cannabis tax is low because it is based on the limited number of retail facilities that have opened so far.
Colorado has about about 4 million adults.
That’s almost $25 per adult.
Illinois has about 9.5 million adults, so about $225 million in revenue could be had for the Land of Lincoln.
That is all back of the envelope guessing — maybe simple, yet not a solution — but if the immorality of cannabis prohibition can’t move Illinois leadership, the potential economic benefits should.
http://www.reuters.com/article/2014/04/11/us-colorado-marijuana-idUSBREA3A1X720140411?irpc=932
Comment by Hans Sanity Monday, Apr 14, 14 @ 12:07 pm
==I can remember a time when Chicago was one of the main financial centers of the world. We had the First National Bank, Continental bank and a plethora of other such institutions on LaSalle street. When they consolidated and merged in the 80s and 90s, they decided that Illinois was NOT the place to be, and left.==
Someone’s wrong on the internet!
Wintrust, BMO Harris, Private Bank, Northern Trust, and MB Financial, all based in the area (and 3 of which are on LaSalle) all have been growing, chiefly due to acquisitions, but organically as well.
PNC, First Merit, and Associated Bancorp have also increased their footprint and headcount in recent years.
Apparently, our masters of the universe sense real opportunities that Arizona Bob doesn’t.
Looking forward to laughing at his next fact-free screed.
Comment by The Doc Monday, Apr 14, 14 @ 1:30 pm
“Colorado expects to raise in 2014 with its 15% cannabis tax is low because it is based on the limited number of retail facilities that have opened so far.”
The total tax amount on recreational cannabis in Colorado is 27.9% (15% excise tax, 10% special sales tax and 2.9% sales tax). It’s pulling in some good revenue right now.
“but if the immorality of cannabis prohibition can’t move Illinois leadership, the potential economic benefits should.”
I sure hope so. There is a bill to decriminalize small amounts in one of the chambers, but who knows if we’ll even get that far this spring.
Maryland’s governor just decriminalized small amounts of marijuana.
http://www.washingtonpost.com/blogs/post-politics/wp/2014/04/14/omalley-decriminalizes-marijuana/?wprss=rss_politics
Comment by Grandson of Man Monday, Apr 14, 14 @ 1:31 pm
Robert the Bruce — the $300m in revenue that “might” be made available from expiring TIF’s will NOT go the City. The City will only get its share of that revenue, maybe 20%. The rest will go to CPS, Cook County, MWRD, Chicago Park Dist. etc., and even those entities will only get additional money if they raise their taxes enough to generate the tax rate of the expiring TIF. Now all that revenue could help those agencies meet their pension obligations, but it will only put a small dent in Chicago’s.
Comment by Anonymous Monday, Apr 14, 14 @ 2:51 pm
Excellent point, Anonymous@2:51-I had forgotten the other taxing bodies thing. Looks like city share might be 23%, and 23% of $300m/year is still $66m/year.
So if property taxes were going to go up by $50m/year, $66m/year could help, right?
Comment by Robert the Bruce Monday, Apr 14, 14 @ 4:20 pm