September 9, 2015
EMANUEL'S TAX-HIKE EXCUSE: BLAME IT ON DALE
ANALYSIS & OPINION BY RUSS STEWART
by RUSS STEWART
A goat or a scapegoat? That is the question. It's almost Shakespearian.
In sports, a "goat" is the hapless player whose error or blunder costs his team a game, a series or a season.
In politics, a "scapegoat" is a heretofore shrewd and popular politician who, in hindsight, can be plausibly blamed by some beleaguered current politician for a now-evident and painfully insoluble problem which originated in years past.
"Blame it on Rich Daley." That refrain will resonate and grow to a crescendo in the coming months and years in Chicago. Bad decisions, poor judgments, lack of courage: it's all Daley's fault, all 22 years of them. It is the "Big Whine." What Mayor Rahm Emanuel is whining about is that while he was mayor, Daley failed to raise taxes and increase revenue by an amount sufficient to enable Emanuel not to have to raise taxes. Shocking.
Message to Rahm: That's called an occupational hazard. The "Me and We Theory" surfaces. A Chicago mayor (or any executive office holder) makes decisions which are designed to keep that person in office. He's focused on getting re-elected, not necessarily on what's best for the constituents. Daley found many creative ways to not raise taxes, including the Skyway sale, the parking meter lease, borrowing. What Daley didn't do was focus on ensuring that his successor wouldn't have to whine.
However, Emanuel does have some consolation. His legacy will be secure. When he leaves office in 2019, either by retiring or suffering defeat, his successor will not have to whine. Emanuel is making the painful decisions now which his replacement can avoid. His $500 million property tax hike in the 2016 budget, which will be duplicated in the 2017, 2018 and 2019 budgets, guarantees that nobody will have to be persuaded to "Blame it on Rahm." Voters will already have blamed it on Rahm. He needs $1 billion over 5 years just to fund the Municipal Employees and Laborers pension fund.
Daley is more a goat than a scapegoat. As mayor, he was well aware of the city's huge pension shortfall, and he chose to ignore it. That was not a "mistake" or an oversight. That was just smart politics. It's like the pending Iran nuclear agreement: When the Iranians have a nuclear bomb in 10 to 15 years, Barack Obama and John Kerry will be long gone. They can let the Israelis worry about it.
Now, Emanuel and his allies will be furiously trying to "goat" Daley, making him take the blame for the necessity of raising taxes. Of course, Emanuel will ignore the fact that he has been mayor for more than 4 years and that we heard not a peep about any property tax increase during his re-election campaign. Just before the April election, when Emanuel faced Chuy Garcia in the runoff, the 2014 first installment tax bills were issued.
On that bill, clearly demarcated, was the fact that Chicago had an indebtedness of $36.7 billion and unfunded pension indebtedness of $31.7 billion; the pension and health care shortfall was $21.2 billion. The 2015 city budget was $8.9 billion. That means the city's debt is 4.1 times the city's revenue stream.
To think that a $500 million property tax hike, which is being spinned as $250 for property valued at $250,000, will solve anything is laughable. All of it must be allocated toward unfunded pensions. According to the current tax bill, Chicago property taxpayers are on the hook for $63.2 billion of indebtedness, which includes, in addition to $36.7 billion for Chicago, $8.1 billion for Cook County government (including pensions), $13.4 billion for the Chicago Board of Education, $1.3 billion for the Chicago Park District (including pensions), and $3.1 billion for the Metropolitan Water Reclamation District (including pensions). Surprisingly, the Cook County Forest Preserve District has debt of only $287 million (including pensions), and the City Colleges of Chicago system has debt of only $396 million.
The 2016 deficit is $754 million, which includes a revenue shortfall of $426 million and a onetime police and fire pension payment of $328 million. In fact, the total pension and health care debt payable only by Chicagoans is $71.6 billion, of which $41.4 billion is unfunded. Chicago's pension debt is funded at 33.2 percent, and the Board of Education's is at 45.9 percent.
On the 2014 Chicago property tax bill, Chicago's share is a minuscule 17.52 percent, and the pension allocation is about 7 percent of the total bill, or about half of the Chicago tabulation. The largest share -- 56.6 percent -- is collected by the Board of Education and the City Colleges, which have their own pension system and for which any shortfall is the responsibility of the state. Chicago's 2010 census population was 2,695,598. Given the current aggregate debt, that means every man, woman and child in Chicago owes $28,000 in debt satisfaction, and the debt will grow ever larger.
To solve the city's pension shortfall, as mandated by the General Assembly, would require Chicagoans to pay 20 to 30 percent of their tax bill toward Chicago pensions for at least the next 20 years. That's not going to be $250 per year, as the mayor promises, it will be at least $1,500 more, maybe as much as $2,500. For many residents, tax bills will double or triple.
Also remember, everybody's going to have a dodge. A big scream will erupt. Seniors and those on fixed incomes will demand tax freezes and increases in senior citizen exemptions. Politicians will increase the home owner's exemption, passing hikes along to rental property owners. The Assessor Office and the Board of Review will be besieged with tax appeals, especially from corporations that own commercial and industrial property and management companies for multi-unit rentals and condominiums. Lawyers and appraisers will reap a bonanza from the flood of appeals. Real estate agents will have a fit. There will be no dearth of sellers who want to get out of Chicago, but with all the publicity about soaring taxes, very few people, except new city employees, will want to move in.
Emanuel's $500 million hike will be chopped and hammered on those who are non-old, non-poor and without the resources or sense to get a lawyer, namely, middle class home owners.
The practice of nickel and diming began under Daley. Water bills used to be nominal. Chicago doesn't have to tap an underground reservoir, transport water in aqueducts, or buy it from some other city, and the city charges suburbs for water and pipeline use. Yet water bills have tripled in the past half-decade. Likewise with revenue stamp taxes on property transfers; it used to be $7.50 per $1,000 of the sale price (paid by the buyer), and now it's $11 (paid partly by the seller). City vehicle stickers cost more. Water certifications, needed for property transfers, cost more. Business licenses, liquor licenses, building permits all cost more. Parking tickets, especially red light monitored, cost more. Taxes on entertainment, restaurants, parking, taxi fares and liquor are way up. When Daley left office in 2011, the city's budget barely eclipsed $5 billion; now it has nearly doubled, and it will be close to $10 billion for 2016. Even so, expenditures in the 2016 budget likely will exceed revenues by $500 million.
For Emanuel, the political damage will just keep on giving. A one-time tax hike can be forgotten by voters over a 4-year term, but unless some other revenue stream (such as taxing professional services, suburban workers or stock transactions) is found, a property tax hike will occur every year. The political implications for the mayor are grim. He was re-elected in April with 55 percent of the vote against a candidate who supported raising taxes; in 2019 every candidate will be "anti-tax."
There also is the issue of credibility. Emanuel knew a property tax hike was inevitable, but he avoided the subject. That's not necessarily misleading, but it is surely not leadership. Emanuel did what Daley did: mumble platitudes, avoid tough choices, and expect voters to forget.
To enact his tax hike, Emanuel must employ a two-tiered strategy:
First, he must line up at least 26 aldermen. That will be easier said than done. No alderman who realistically expects to win another term in 2019 will want to support the mayor, especially if more hikes are to come. It puts them in harm's way. No alderman who won with less than 55 percent of the vote in 2015 will commit political suicide.
White aldermen from the Northwest Side and Southwest Side "Bungalow Belt" won't support it. White aldermen from the Lakefront, with their teeming condo constituents, won't support it. The City Council's anti-Emanuel "Progressive Caucus" won't support it. Emanuel must depend on black and Hispanic aldermen.
Second, Emanuel must wage an intense and unrelenting public relations campaign. The mayor is not likable, nor is he seen as especially trustworthy. He has built up no reservoir of good will. He has already disclosed a list of program cuts and department economies. He must trumpet more cuts weekly. He must plead that there is no alternative, that everybody suffers pain. Good luck.
Otherwise, there is the old standby: blame it on Daley.
Send e-mail to russ@russstewart. com or visit his Web site at www. russstewart.com.