Chicago Mayor Loads Budget with $87 Million in Tax and Fee Hikes

Published December 1, 2004

Chicago businesses and residents, who already pay some of the highest local taxes and fees in the nation, will soon see many taxes and fees climb still higher if Mayor Richard M. Daley’s proposed 2005 budget passes as presented.

Daley submitted a proposed budget of $5.08 billion on November 9, up from $3 billion when he took office in 1989. He projects an extra $87 million in tax and fee revenue over the previous year’s budget if his plan is approved.

Numerous Increases Planned

Taxes and fees would increase on a host of items, including beer, wine, and hard liquor; public parking; tickets to sporting events, theater productions and other entertainment; cigarettes; hotel accommodations; retail sales; vehicle rentals; natural gas; and restaurant meals.

Among the proposed increases are these:

  • a one-quarter percent rise in the city portion of the retail sales tax, taking it from 8.75 to 9 percent, making it the highest sales tax rate among major U.S. cities. The sales tax is 8.625 percent in New York City and 8.25 percent in Los Angeles;
  • a tax of 10.25 percent on restaurant meals, up from 10 percent;
  • a 32-cents-per-pack increase in the city tax on cigarettes;
  • a nearly quadruple increase in the tax on natural gas, from .014 cents per therm to .052 cents per therm;
  • an increase in the city hotel tax, from 3 to 3.5 percent;
  • a 25-cent rise in the city’s parking tax, to $2.25;
  • an increase in the amusement tax from 3 percent to 4 percent on tickets for live performances at venues of at least 750 seats, and from 7 percent to 8 percent for all other amusements, such as professional sporting events. (Tickets at venues that seat fewer than 750 persons are not taxed.);
  • a rise of about 20 percent in the city’s taxes on alcoholic beverages. Taxes would go from 16 cents to 19 cents a gallon on beer, and from $1.50 to $1.80 a gallon on hard liquor; and
  • a hike in the minimum fee to operate sidewalk cafes, from $600 to $1,000.

Property Taxes Untouched

The one major tax Daley does not propose to increase is the property tax, probably the most politically unpalatable of the taxes the city imposes. Meanwhile, the County of Cook, where Chicago is located, is contemplating tax and fee hikes of its own to plug a projected budget shortfall of $146 million.

Some of the increases would give Chicago the highest tax rates of any major city in the United States, according to spokespersons at several organizations.

“There’s a 10 percent tax on restaurant meals in Chicago, and the mayor wants to make it 10 and one-quarter percent. Is that amazing or what?” said Donovan Pepper, a spokesman for the Illinois Restaurant Association. “Chicago would probably be the highest there is. We’re still checking, but right now we don’t know of any other city that would have a higher tax on meals.”

Rob Nash, a spokesman for the Chicagoland Area Chamber of Commerce, said, “When you put these tax increases in context with state-level and county-level tax increases in recent years, to come back in a time of crisis and say we need $80 million more, mainly from the business community, is a tough thing to swallow.

“The sales tax increase puts us farther behind everyone,” Nash said. “We are already higher than anyone in the region and just about anyone in the country. People will buy more things outside the city to avoid the sales tax.”

Gregg Durham, a spokesman for the Illinois Manufacturers Association, said his organization is especially upset with the proposed hike in the tax on natural gas.

“We’ve already sent a letter to the mayor protesting these things,” Durham said. “We asked him to rethink the natural gas tax, because it will greatly increase the cost of manufacturing. The fact is, if Chicago had merely kept pace with the rest of the nation in terms of job creation, we’d have 337,000 more jobs. Instead, we’ve lost more than 130,000 manufacturing jobs in recent years. We feel that it is shortsighted to be going after people who provide jobs. Anything that raises the cost of doing business will stifle job creation or encourage people to move out of the area.”

Aldermen Voice Discontent

The Chicago City Council often votes in lockstep with the mayor’s wishes, but some aldermen have been publicly grumbling about the proposed tax and fee hikes.

Alderman Tom Tunney (D), who owns a Chicago restaurant, said to Chicago Tribune reporters, “And we wonder why business is flat. There’s a tremendous disincentive to do business in Chicago.”

Alderman Brian Doherty (D) complained, “you are nickel and diming.”

Alderman Freddrenna Lyle (D) said the city’s budget officials had decided a property tax increase would be political poison. Property reassessments caused tax bills at many locations to skyrocket in 2003, leading to a backlash that resulted in a cap on property tax assessments. That law is now being challenged in court by plaintiffs who complain the assessment cap unfairly shifts the tax burden. (See “Chicagoland Chamber Files Legal Challenge to Assessment Cap,” page 16.)

“The perception is, we’re all getting overtaxed,” Lyle told the Chicago Tribune. “Property tax in this city has been the forbidden fruit. You definitely don’t touch property taxes.”

Personnel Costs Are Biggest Challenge

In delivering his proposed budget, Daley made little mention of his proposed tax and fee hikes. He said the city’s finances are strained because the city has not rebounded from the recession of 2000-2001; wage and health care costs, which make up more than 80 percent of the city budget, continue to rise; and state and federal aid have lagged.

“Revenues are slow,” Daley said. “The cost of personnel continues to increase. And, we’re not getting all the support we need from Springfield [Illinois’ capital] or Washington, DC.”

Daley said he has tried to control costs, and noted that the city’s civilian workforce has dropped by more than 3,800 since he took office in 1989. He also cited efforts to improve management of city functions and mentioned initiatives to outsource certain tasks, such as custodial services at O’Hare International Airport and water management customer service operations.

The city’s biggest challenge is management of personnel costs, according to Laurence Msall, president of The Civic Federation, a Chicago-based, nonpartisan government research organization.

“The number one challenge is that personnel costs are growing much faster than revenues,” Msall said. “Health insurance, pensions, and other personnel costs contribute to the structural deficit of the city. They have about 36,000 city employees, but an additional 3,000 to 4,000 contractual workers funded through grants. With 39,000 to 40,000 employees, they have to look at controlling those costs as key to balancing the budget.

“We would hope the city will further pursue privatization and management efficiencies before going to any of the revenue enhancers,” Msall said.

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.