Chicago Taxes Keep Climbing, This Time for School Funding

Published September 1, 2005

Chicago public school officials on July 27 approved what they called a “bare bones” budget that imposes a maximum allowable 1.9 percent property tax increase, the latest of a series of tax hikes imposed on Chicago residents, businesses, and visitors.

The Chicago Board of Education approved the tax hikes, estimated to generate about $45 million for fiscal 2006, even though school officials said enrollment and jobs in the 340,000-student public school system were declining. The budget totals $5 billion.

The tax increase adds more than $14 to the property tax bill of a typical $200,000 home, bringing the total tab for schools for such a home to about $700. A commercial property valued at $500,000 will endure a $411 increase, to more than $15,000, according to the Civic Federation, a local public policy watchdog group.

Tax Follows Other Hikes

The school property tax increase follows $85 million in new taxes and fees imposed last December by the city of Chicago. That includes a quarter-cent increase in the city’s sales tax that was delayed until July 1, pushing the Chicago sales tax to 9 percent, by far the highest sales tax rate in the area and one of the highest in the nation. A new preliminary city budget, which projects a $95 million deficit in 2006, may forebode still-higher levies.

The school property tax increase is the ninth since Chicago Mayor Richard M. Daley (D) effectively took control of the school system 11 years ago. The exceptions were 1995, the first year he controlled the system, and 1998, before a mayoral election. Each hike was the maximum allowed under state law.

As he did the previous hikes, Daley approved the new tax increase, saying it was better than increasing class size. The mayor, schools chief executive officer Arne Duncan, and other officials lamented having to consider either action but said they were forced to because a $90 million increase in state aid wasn’t enough. School officials emphasized the point by pulling $20 million from the system’s reserve funds. That was the second drawdown in three years, reducing the fund balance to $190 million, from $350 million in 2002.

R. Klein Engler, who teaches at Roosevelt University in Chicago and has written books about various aspects of Chicago, questioned the wisdom of a tax increase for the schools when Chicago can find a way to build “a silly Millennium Park and a silver kidney bean that gives tourists a fleeting thrill, but no money to educate our students.”

Millennium Park, originally set to open in 2000, opened in July 2004 near Chicago’s lakeshore at a cost of $475 million, three times original cost projections. The “kidney bean” is a large metal sculpture in the park.

Budget Up 7 Percent

“Our budget goes up by 7 percent a year,” said School Board President Michael Scott to the Chicago Sun-Times. “The state was far short of what we needed, so we have to do a combination of cutting expenses and identifying more revenue, vis-a-vis a tax increase.” He said the school system is “working smarter each year,” thereby allowing the system to put “money in core programs.”

New savings include $78 million in job cuts, of which 891 positions are in the schools, 197 at the central office, and 200 in special education staff. Another $19 million disappears from the student transportation budget, and raising the price of a school lunch to $1.85, from $1.10, saves $14 million. Still, $64 million was added to the budget to cover pay increases of 4 percent for teachers and 2 percent for administrators. Another $35 million must be deposited in the teachers’ pension fund because it has fallen short of the mandated 90 percent funding level.

The Civic Federation accepted the budget only as a short-term solution, warning of difficulties ahead. Laurence Msall, the group’s executive director, said in a 56-page report the long-term outlook was troubling because “operating costs continue to grow, in spite of reduced staffing, in spite of reduced enrollment.”

‘Costs Far Outstripping Revenue’

Over the past five years, operating revenues rose 17.7 percent, while employee compensation increased 18.8 percent and employee benefits costs jumped 34.7 percent. “This trend of personnel costs far outstripping revenue growth is clearly unsustainable,” the Civic Federation report said.

School property taxes, which account for about half of total property tax bills paid by Chicagoans, are only a part of the city’s budget woes. In addition to the July 1 sales tax increase in Chicago, taxes on hotel rooms, liquor, cigarettes, parking, amusements, and natural gas also have been raised this year. Daley has steadfastly resisted any increases in the property tax for the city budget.

How long he can keep up resistance to raising the city’s share of the property tax is in question. The city’s Office of Budget and Management now predicts a $94 million shortfall in the 2006 budget, a hole that won’t be covered by the new tax increases or labor concessions.

On July 28 the mayor ordered a 3 percent cut in spending by all non-emergency city departments for the rest of the year.

However, Daley’s maneuvering room on taxes may be crimped by a growing corruption scandal in the mayor’s administration and a 2007 mayoral election, in which he may be challenged by Rep. Jesse Jackson Jr. (D-IL).

Dennis Byrne ([email protected]) is a Chicago writer and consultant.