First Ward Alderman Daniel La Spata held a town hall focusing on the City of Chicago’s budget on Oct. 1 to educate constituents and propose solutions.
LaSpata opened up the town hall with a brief introduction, saying that “the right people to talk to are the people who showed up” to learn about the city’s budget. He expressed his desire to see the city budget as a “moral document.”
“Who and where and what we tax to generate the revenue for city operations says something about what compassion and justice looks like in Chicago,” La Spata said.
He expressed his desire to tackle budget woes in ways that are more progressive and less regressive than previously seen. He mentioned he wants to challenge the narrative of austerity in the city’s budget.
The first speaker was Ralph Matire, Executive Director of the Center for Tax and Budget Accountability who is also the Arthur Rubloff Endowed Professor of Public Policy at Roosevelt University. Matire was quick to joke that La Spata was once an intern at the Center for Tax and Budget Accountability while a student. He noted that when one examines revenue sources available to cities, one finds they are all regressive in nature.
He delineated Chicago’s challenges: its revenue sources are extremely diffuse and property tax revenue only goes to the city’s pension obligations, library and debt services, and not to more general obligations. Matire said that the city gets a portion of its budget funding from the State of Illinois via the Local Government Distributive Fund, where the state shared some of its income tax revenue with municipalities.
“If the city doesn’t deal with the pension debt, they will not solve their revenue problems through tax alone,” Matire said.
Another core issue Matire shed light on was that the city’s revenue has not grown at all in real terms in 10 years in regards to corporate funds. He also commented on the city’s greatest fiscal challenges. He said that the city’s pension obligations were less explainable by corruption than by the simple fact that they were purposefully underfunded for decades via a “statutory scheme.”
According to his presentation, the city’s pension spending as a percentage of its general fund was 27.6 percent as of 2017, the most of the largest 15 American cities.
Solutions to City’s Pension Spending
Matire began proposing possible solutions. First, he mentioned reamortizing pensions, which would lead to total savings of $10.81 billion through 2058. He proposed selling pension obligations bonds, which would save interest costs and free up more revenue.
For revenue options, he mentioned levying a 1 percent city income tax, but was quick to note the political impracticability of it at the same time Gov. JB Pritzker seeks to pass the Fair Tax amendment in 2020. Matire said downstate voters could view both at the same time as an attempt to “open the floodgates” for Chicago, which would damage the 2/3 vote needed to pass the amendment.
He proposed increasing the municipal allowance to 10 percent in the Local Government Distributive Fund, which would not increase taxes on anyone. Last, Matire mentioned “modernizing” the sales tax, extending it to services rather than mostly goods, which he argued more accurately reflects a 21st century economy.
The next speaker was from United Working Families and explained taxes that UWF supports or wants to explore. Aldermen that work with UWF have introduced an increase in the hotel tax from 4.5 percent to 7.5 percent, arguing that it will increase revenue by $75 million. UWF supports reinstating the “head tax,” which is an “employees expense tax” that charges a flat rate on companies that employ more than 50 people, arguing the rate should be $35 per “head” with exceptions for employees from high poverty index areas in the city.
UWF supports a payment in lieu of taxes, which targets institutions like universities and hospitals which use large portions of city land and are often tax-exempt. In this change, the city would negotiate with these actors to make payments to the city to fund its services rather than pay via taxes. UWF also floated a financial transaction cost, which would levy a tax on purchases and sales of securities.
Matire commented, citing the highly unlikely political reality that this tax could pass.
An argument broke out between Matire and a guest who argued that Illinois’ high taxes are causing people to leave the state. Matire agreed that people are leaving Illinois, but challenged the tax reasoning, stating that there has never been a peer-reviewed study that showed a “statistically meaningful relationship” between migration and taxation. He even noted that California, which has the highest taxation on millionaires in the US, continues to see a net influx of millionaires every year.
La Spata’s office said more budget-centered town halls will occur in the future.
Featured photo: Paulina Fadrowska