Brandon Johnson will walk into a financial hornet’s nest when he takes the oath next month to become the 57th mayor of Chicago.
The city’s four cash-starved pension funds will demand more than $2 billion in payments just to stay afloat. The cash spigot from the federal American Rescue Plan Act that has helped the city fill its budget gaps is scheduled to dry up next year. And predictions of a potential recession on the horizon threaten the city’s fragile economic recovery from the COVID-19 pandemic.
Johnson made his own task harder by vowing repeatedly during the campaign that he will never raise the city’s property tax levy. Property taxes are typically the closest money-raising lever in reach when mayors need to fill a budget hole.
The incoming mayor has promised to balance the city’s ledgers with a “tax fairness plan” he says will squeeze money out of “the suburbs, airlines & ultra-rich” to come up with as much as $800 million in new revenue each year.
After Johnson agreed early in the campaign to drop a controversial plan for a tax on suburban Metra commuters, a range of tax hike options remained before him. But some of the plans will require the blessing of state legislators or voters, one will be constrained by federal law, and all will face at least some pushback from different corners of the city.
‘Mansion tax’ on real estate sales
Johnson is a vocal supporter of the “Bring Chicago Home” proposal to raise taxes on property sales of more than $1 million to raise money for anti-homelessness programming. Because it involves re-jiggering the city’s tax structure, state law requires it be approved through a citywide ballot referendum.
Mayor Lori Lightfoot also supported a graduated real estate transfer tax when she took office in 2019, and she implored state legislators to change the law so she could avoid a referendum. But she clashed with leaders in Springfield over how the resulting revenues would be used, and the plan fizzled. Lightfoot later soured on the proposal, citing its potential economic impact, and her allies in the City Council last year spiked an effort to force a ballot referendum.
In its current form, the Bring Chicago Home proposal would more than triple the tax on property sales, from $3.75 per $500 to $13.25 per $500 of the sale value, for real estate transactions of $1 million or more. That means that the buyer of a $900,000 home would owe $6,750 in taxes on the transaction, but the buyer of a $1.1 million property would owe $29,150.
The proposal would also apply to commercial properties, most of which sell for more than $1 million. Proponents have previously said the measure could bring in more than $150 million in new revenue each year, but Johnson’s campaign predicts his “Chicago Mansion Tax” would raise $100 million in new revenue.
Ald. Carlos Ramirez-Rosa (35th), a Johnson ally who is set to chair the City Council Housing Committee in the coming term, said he is confident the tax will be high on the new mayor’s to-do list.
“Bring Chicago Home is a hugely popular proposal that will ensure that we as a city are generating the revenue necessary to address the crisis of homelessness,” Ramirez-Rosa said in an interview Tuesday. “The current funds we have at our disposal are wholly insufficient to assist those that are experiencing homelessness.”
The Northwest Side alderperson said he still supports a pending City Council resolution that would put the issue to Chicago voters — even if a change in state law would be quicker.
“Thus far, we have always spoken about a referendum that is put before the voters,” Ramirez-Rosa said. “I don’t have any indication that the strategy has changed, but that’s still a conversation that needs to be had.”
Financial transactions tax
One of Johnson’s most lucrative new tax proposals also likely faces the rockiest path to approval.
A so-called “LaSalle Street tax” on financial transactions has long been championed by the Chicago Teachers Union and its allies but has never gotten purchase at City Hall.
Johnson repackaged and proposed the proposal as a “Big Banks Securities and Speculation Tax,” saying it would levy a $1 or $2 tax per securities trading contract. His campaign website says the added tax would “[amount] to less than 0.002% of a trade’s value while raising $100 million for Chicago.”
Opponents of the tax claim that because most trading is now done online, any hike in the tax — no matter how small — would likely drive traders out of the city.
Because the city lacks the legal authority to tax financial transactions, implementation of the plan would first require a change in state law.
Gov. JB Pritzker told reporters after a meeting with Johnson earlier this month that he would be unlikely to support a financial transactions tax, citing fears that it would drive traders away.
Big business ‘head tax’
Johnson is also on a collision course with the city’s business community over his proposal to revive a defunct tax on large businesses that have offices in Chicago.
In 1973, Chicago implemented a $3-per-head tax on employees for companies located in Chicago with at least 15 employees on the payroll. Mayor Richard M. Daley narrowed the tax in the 1990s so it would only apply to companies with 50 employees or more.
Upon his election in 2011, Mayor Rahm Emanuel pushed to phase out the tax, calling it a “job killer” that was dissuading companies from opening offices in Chicago. By 2014, the head tax was gone.
But Johnson’s campaign website counters that Chicago achieved “historic economic growth, development, and investment” during the head tax’s 40-year run. It says that a revived head tax at “an historically low rate” of $4 per employee would “[allow] businesses to continue creating new jobs.” Johnsons claims the reinstated tax could generate $20 million in new annual revenue.
During a September 2020 hearing of the City Council Finance Committee, business leaders and finance officials in Lightfoot’s administration threw cold water on proposals to reinstate the head tax or impose a financial transaction tax as the city scrounged for revenue amid a pandemic-induced budget shortfall.
“Nowadays, [traders] could just physically pick up their server or, if it’s in the cloud, just literally say, ‘We’re incorporating in Indiana,’” said Ald. Scott Waguespack (32nd), who chairs the Finance Committee. Waguespack also told reporters Monday that he does not “believe in” reinstating a business head tax and noted that he supported Emanuel’s push to kill it in 2011.
But Waguespack, who is set to keep his Finance Committee chairmanship under a preliminary City Council reorganization plan, also said he won’t use his authority to stifle debate.
“I don’t have a problem holding hearings on anything,” the alderperson said. “I’d like to oversee the process and make sure everyone is heard.”
A single sentence in Johnson’s campaign platform commits to “strengthening” Chicago’s Hotel Accommodations Tax, which currently tacks 4.5% onto the price of each hotel stay in the city.
His campaign website estimated the tax hike could raise an extra $30 million for the city each year. However, Johnson has more recently described his proposed tax hike as one dollar per room per night — a charge that would bring in less than $15 million per year, based on pre-pandemic hotel stay trends.
The tax hike proposal is already facing blowback from tourism industry leaders who note Chicago hotel guests now pay more than a 17% tax rate — already among the highest in the nation.
Michael Jacobson, president of the Illinois Hotel & Lodging Association, said a dollar-per-night tax would hardly be enough to scare away vacationing tourists. But it may be a deciding factor for businesses and national organizations looking to book large blocks of rooms for conferences.
“Leisure tourism came roaring back after the pandemic…but business travel and convention attendance has still lagged nationwide, and that impacted Chicago more than probably any other market,” Jacobson said in an interview. “So now we’re having conversations about further dissuading that segment of business to come to Chicago. It just couldn’t be a worse time to be having this conversation.”
Jacobson said he personally met with Johnson this month and urged the mayor to pour more money into tourism marketing efforts so that the city can attract more tax-paying visitors, instead of charging existing visitors more.
Airline fuel tax
Chicago charges airlines a tax of 5 cents per gallon on jet fuel. The airlines must also pay state and local sales taxes on the fuel they buy at Chicago airports.
Johnson has proposed hiking the tax on jet fuel by enough to raise $98 million. His campaign platform says the tax would make “the big airlines pay for polluting the air in our neighborhoods.”
The proposal is sure to face pushback from airlines, including Chicago-based United, who — like hotel operators — say Chicago and Illinois already combine for some of the highest fuel taxes in the nation, and that any hike in taxes would be passed on to passengers.
Johnson’s proposed hike may also be hampered by an obscure federal law that requires any money raised from state or local fuel taxes to be spent on aviation-related costs. Otherwise, the city could risk losing out on critical grants from the U.S. Department of Transportation.
Airline officials point to the legal restriction as a reason for why jet fuel taxes were carved out of Chicago’s 2020 push to raise gasoline taxes.
‘Regularizing’ TIF surpluses
Lightfoot has repeatedly leaned on excess revenue from the city’s overflowing tax-increment financing (TIF) funds to close the city’s annual budget gaps. Johnson’s platform calls to “regularize” TIF surplus declarations, saying a change in the process could “result in $100 million in excess funds.”
TIF allows the city to freeze property tax collections within specific districts and send additional tax dollars directly into a fund to bankroll capital projects. Last year, Lightfoot declared a more than $300 million surplus in unspent money from TIF funds. The city of Chicago only reaped about one-quarter of those funds, with the rest going to Chicago Public Schools, Cook County and other taxing bodies.
TIF districts are on track to absorb increasing sums of money each year as property assessments climb, especially following the City Council’s move last year to approve 12-year extensions for a handful of the city’s most lucrative districts.
Chicago’s Office of Budget and Management has no formal or public process for deciding how large a TIF surplus to declare. But Johnson’s campaign has not specified how a more formal process would lead the city to collect more money than it already does.
A spokesperson for Johnson did not respond to requests for more details on his revenue-raising plans.
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April 19, 2023 at 01:04AM