To no one’s surprise, Mayor Rahm Emanuel’s $588 million property tax increase passed Wednesday. That’s the tax hike he promised during his reelection campaign to do everything he could to avoid.
It may have been inevitable, given the pension crisis, the quagmire in Springfield and the unwillingness of our political leaders (Emanuel prominent among them) to consider more progressive revenue solutions.
But a half-billion dollars is a nice round number, and it lends itself to comparison to other big-ticket items – which help put Emanuel’s tax hike in perspective.
What exactly are we paying for?
Chicagoans pay close to a half billion in property taxes each year to fund the city’s tax increment financing districts. And the mayor’s tax hike means the property taxes going to TIF districts will increase. At the end of this year there will be over $2 billion in the city’s TIF accounts, to be spent as the mayor chooses, on a more or less ad-hoc basis – sometimes far from the district where the money was raised, sometimes (as with TIF funding for Divvy stations) without asking aldermen.
Imagine if the City Council had to vote each year for a $400 million property tax hike to pay for TIF. There would be big headlines in the papers and lots of questions from constituents. We would want to know a lot more about where the money is going – and whether we can really afford this largesse.
For years the city has paid more into TIF accounts than into its pension plans. Indeed, the explosion of the TIF program took place over the same period that pension funding levels went south. Fixing TIF could help fix pensions.
A half-billion dollars is also what Chicago has paid over the past decade in police misconduct lawsuits. Many of those cases – though by no means all – predate the Emanuel administration. And like pensions for public employees, these payouts are a legal and moral responsibility. Unlike pensions in and of themselves, though, they’re a huge cost for bad policy.
And the payouts will keep coming unless there’s a change in the way the Chicago Police Department directs and supervises its officers. Emanuel has offered no leadership on this issue. His administration seems to be participating in the cover-up of the Laquan McDonald case and dozens of cases involving disgraced detective Reynaldo Guevara. Most recently his complaints about civilian monitoring of police have put him at odds with the Obama administration.
There’s another half-billion dollars floating around out there – in fact $581 million, virtually the same amount as Emanuel’s tax hike. That’s what the city has paid to JPMorgan-Chase and Bank of America to terminate interest rate swap deals that went bad when the city’s bond rating hit junk status, according to Grassroots Collaborative. The group states that the city has paid over $800 million total to terminate swap deals with Wall Street banks this year – with more to come.
An administration spokesperson said the city concluded it didn’t have a legal case to try to recoup the losses. Outside experts, including analysts at ReFund America, and lawyers who specialize in the field, disagreed. The Chicago Tribune found 10 local governments that took banks to arbitration over similar deals, charging them with misrepresentation; nine won their cases.
“Instead of suing to get back taxpayer money as other cities have done, [Emanuel] gave the banks even more money in termination fees,” said Nathan Ryan of Grassroots Collaborative, slamming the mayor’s approach as “cozy treatment of predatory banks.”
The window for filing arbitration cases has closed, but the city could still sue the banks for fraud in state court – except that it can’t. In a series of forbearance agreements, which bought the city enough time to negotiate settlements and issue bonds to pay off its swap deals, banks retained all their legal rights. But the city agreed to release the banks “from any and all claims … actions … controversies, demands, suits, and other liabilities.” For some reason, going into negotiations, the city gave up its strongest leverage.
So we’ll be paying full freight for a series of deals where we were snookered, where legal experts say we shouldn’t give in and where other governments have shown you can fight and win.
For TIF diversions and police misconduct settlements, we can demand reform. But we’ll be on the hook for years to come for borrowing to fund payoffs for these bad bank deals. While pension payments are necessary, these are not. Would we need to raise taxes by half a billion dollars if we hadn’t caved on these toxic deals?
The city has higher priorities than placating Wall Street banks.