The Chicago Tribune ran an interesting article at year end about a series of tax hikes there.
Those looking for relief with the new year will be disappointed — the tax bite will continue in 2018. There’s another round of property tax hikes and an increase in the water and sewer tax. On top of that, the city is raising the monthly 911 fee and a CTA fare hike is in store.
The vast bulk of the money raised will be spent on fixing underfunded government worker pension systems that were at risk of going broke. It’s a point Mayor Rahm Emanuel often raises, also noting that he’s trying to end the practice of papering over Chicago’s longstanding financial woes accrued under former Mayor Richard M. Daley. That, however, may be cold comfort to taxpayers now shouldering the burden.
It’s useful to distinguish between taxes implemented for service delivery vs. those raised to fund legacy liabilities. In this case, some of the taxes and fees the city has implemented are going into services. Water and sewer rates were hiked to finance overdue infrastructure improvements in those critical systems. The Uber/Lyft tax is getting directed into public transit.
The problems start to come in with the pile of pension and debt liabilities at all layers of government in Illinois. While some tax rates are high in the state, overall the tax burden in Illinois is lower than truly high tax places like New Jersey and California.
The real question is how Illinois residents will react to taxes going up substantially over an extended period of time simply to pay off these legacy liabilities, with no improvements in public services to show for them. Bond analyst Kristi Culpepper suggested this might ultimately cause payment issues due to political unrest:
Chicago taxpayers are on the hook for billions of dollars of long-term debt and have little of tangible value to show for it. There is a good chance that residents do not understand the nature of their government’s borrowing activities, since these were complex offerings. (Well, unless they read what I have written here…) As debt service payments increasingly compete with other political priorities for funding, this revelation might eventually erode the city’s willingness to pay.
At a minimum, continued future tax hikes will crimp the city’s ability to invest in improving public services. To date Rahm Emanuel has been pretty creative in being able to find ways to pay for capital improvements, at a minimum. He put in place the water/sewer rate hikes before the pension hikes started kicking it. Had he done the reverse, there may have been more public outcry. It will be interesting to see how this dynamic plays out as taxes rise across Illinois with little new in public benefit to show for it.