Emanuel warns of major property tax hike if lawmakers don’t provide pension fix

Mayor Rahm Emanuel on Friday said that if he doesn’t get major financial relief from state lawmakers, he’ll have to raise property taxes significantly next year.

The acknowledgment came as a re-election seeking Emanuel released his ideas on how to deal with the city’s grave financial condition, which includes a $550 million increase in payments to the police and fire pension funds.

The mayor wants three things from lawmakers and Gov. Bruce Rauner: a Chicago casino, more money for Chicago Public Schools pensions and changes to the police, fire and teacher pension funding laws to stretch out payment increases into future years.

“Unless we are able to collaboratively pass legislation to modify our pension structure and put in place a smart funding formula, property tax bills will explode next year,” Emanuel’s plan states.

Mayoral challenger Jesus “Chuy” Garcia also would not rule out property tax increases, but he declined to say how he’d cover the skyrocketing government worker retirement costs.

Both candidates in the April 7 runoff focused on finances Friday after a couple of weeks in which Emanuel and his allies criticized Garcia for not providing specifics on the issue and Garcia blamed Emanuel for the city’s “financial free fall.”

Emanuel repeated his long-standing position that raising property taxes was a “last resort.” At the same time, however, he drew a connection between the fate of cost-cutting pension changes and the need for more property tax revenue.

“The fact is, without any real reforms, relying on taxpayers to foot the entire bill for pensions only makes a property tax increase more likely,” Emanuel’s plan states.

The acknowledgment comes just two days after the Illinois Supreme Court heard arguments in a legal challenge to a landmark 2013 pension law that curbs state employee retirement benefits. That law applies to only five badly underfunded state pension systems, but if the justices toss out the state overhaul, that could hamper Chicago’s ability to implement its own money-saving reductions by reducing benefits in city employees’ pensions.

So far Emanuel has managed to avoid property, sales and gas tax increases by boosting a host of other taxes, fines and fees. The mayor’s plan states that a property tax increase would be “the very last place” to look for new revenue. But if such a tax increase became necessary, Emanuel calls for higher homeowner exemptions to soften the blow on lower-income Chicagoans. Such a change would require approval from the state legislature.

As the Emanuel campaign released the mayor’s plan via email, Emanuel appeared Friday morning at Furama, a Chinese restaurant in Uptown, to try to drum up support among Asian-American business and community leaders.

Before the event, Emanuel spoke in nonspecific terms about getting Chicago’s “fiscal house” in order and cutting the city’s structural deficit. But as he left the event after his financial plan had been released, Emanuel declined to answer questions.

“We’re going to do that methodically. I’ll sit down and talk to you,” the mayor said before jumping into a waiting vehicle. Later, Emanuel aides turned down Tribune requests to interview the mayor on the city’s finances.

Friday morning, Garcia met with reporters at a Loop law office to discuss what he called his “new approach in prudent fiscal management of Chicago.” Garcia said his plan had been developed after consulting experts in government finance and pensions.

Garcia argued that Chicago is on the edge of a fiscal cliff because of Emanuel’s mismanagement, and he said he would find savings in efficiencies before turning to new taxes or revenue to cover the city’s budget shortfall or increased pension payments.

The Cook County commissioner said his strategy would be based on four principles: making city services more efficient by striking intergovernmental agreements between the city and its sister agencies, conducting performance audits of city departments, reforming tax increment financing districts and expanding collaboration between the city and county to realize more savings.

“The fiscal crisis in the city of Chicago is severe,” Garcia said. “People in every neighborhood are feeling the impact of poor financial decisions of the Emanuel administration. There is an urgent need to address the crisis, and this will be a top priority of mine.”

But Garcia repeatedly declined to say what new taxes or fees he might tap to cover the city’s budget and make pension payments. Asked if he would rule out a property tax increase, Garcia did not directly answer: “I cannot, at this point, look at taxpayers in the eye and ask them to shoulder another burden before we have exhausted all other options and before we have looked at all possibilities and made sure that the very wealthy and corporations are paying their fair share of taxes.”

In his plan, Emanuel contends that the deals he made on two of the city’s four major pension funds provide a “road map” for how he would grapple with a looming $550 million increase next year in the city payments to retirement funds for police officers and firefighters, as well as additional large payments into the teachers pension fund. In those two previous deals struck with unions, employees were asked to pay more while their future benefits, including cost-of-living increases, were reduced.

It’s unclear how that would work for police and fire pensions because cops and firefighters already have much lower cost-of-living increases than other city workers.

On Friday, Garcia said he would not favor any pension changes that cut benefits for current employees or retirees — only future workers — a step that would do little to reduce city pension expenses in the short run. Garcia did not offer specific revenue sources for how he’d pay for increased pension payments without such changes.

Emanuel also wants the legislature to allow the city to phase in the increase in police, fire and teacher pension payments over a longer period to avoid giving taxpayers too much “shock” at once.

Beyond that, the mayor’s plan includes a politically difficult task of getting state lawmakers to give Chicago a larger share of funding for teachers pensions. Chicago homeowners pay for CPS pension costs through property taxes and also pay state taxes that help pay for suburban and downstate teacher pensions. Emanuel said that’s unfair and wants state leaders to end the practice. His solution is to give CPS an additional half-billion dollars for its pension system.

Here’s the math from campaign aides: Chicago has one-fifth of the students in Illinois, and the state spends more than $3 billion on teacher pensions, meaning Chicago’s “fair share” would be $520 million.

Tribune reporters Bob Secter and Cynthia Dizikes contributed.

bruthhart@tribpub.com

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