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Chicago almost hits bottom rank of 150 cities for high cost, poor services – Illinois Policy

Chicago almost hits bottom rank of 150 cities for high cost, poor services – Illinois Policy

Out of 150 cities, Chicago came in almost at the bottom when the quality of city services and the total budget per capita were ranked, confirming what most Chicagoans already knew. Taxpayers have been asked to pay more for water and sewer use, 3 cents a gallon more for gasoline, rideshares, and other taxes, fines

Out of 150 cities, Chicago came in almost at the bottom when the quality of city services and the total budget per capita were ranked, confirming what most Chicagoans already knew.

Taxpayers have been asked to pay more for water and sewer use, 3 cents a gallon more for gasoline, rideshares, and other taxes, fines and fees. Chicago’s 10.25% sales tax is the nation’s highest combined rate for a major city. Even listening to Spotify or watching Netflix is hit with a  9% amusement tax.

Then there are property taxes. On average, from 2000 to 2019, residential property taxes in Chicago rose by 164%. They rose  $543 million just during former Mayor Rahm Emanuel’s term and Mayor Lori Lightfoot in her current budget added $94 million in property taxes, plus created automatic annual increases tied to inflation.

So when the cost of city government was compared to the quality, Chicago ranked 141 out of the nation’s 150 largest cities, according to researchers at personal finance website WalletHub.

WalletHub based its rankings on a combination of the quality of city services and the city budget per capita. It measured city efficiency – whether city residents were getting a good return for their tax dollars. Low costs and great services ranked high, while high costs and poorer services ranked low.

In addition to an overall score, WalletHub provided individual scores for quality of services and for total budget per capita. Chicago did poorly on both measures, ranking 136th for cost per capita and 140th for service. By comparison, Washington, D.C., took the bottom spot because it had the highest costs, but city services were ranked high. Detroit offered the worst city services.

Chicago’s heavy tax burden would be less of a problem were taxpayers getting value for their money. High costs in Seattle and New York City translated into high quality services, WalletHub found.

So where is the money going?

Chicago’s pension debt is largely to blame for the city’s high expenditures crowding out the public services taxpayers expect for their money and that can protect housing values.

A decade ago Chicago spent $450.5 million on pensions, 5% of total city spending. In 2021 the city will spend $1.82 billion on pensions, or 15% of total spending.

The problem will get worse without meaningful pension reform.

For fiscal year 2022, the city projected its pension contributions will balloon to $2.25 billion. That amount may underestimate the problem because Chicago recently adopted actuarially-based funding. This would represent, at minimum, a $375 million increase. That amount exceeds the city’s yearly expenditure on City Development, which includes the Department of Housing, Department of Cultural Affairs and Special Events, and Department of Planning and Development.

If the yearly increase in pension payments exceeds amounts spent on alleviating homelessness, promoting sustainable growth and providing affordable housing, the city and its residents have a problem. That problem is expected to grow.

Annual contributions to city pension funds were already projected to rise by $1 billion during the course of Lightfoot’s first term in office. Even after the $375 million increase expected in 2022, the city’s projections in the budget, which run through 2026, show ever-escalating annual pension contributions.

Despite Chicago’s rapidly rising taxpayer-funded pension payments, it is unlikely they will be sufficient to meet Chicago’s obligations. The city’s eight pension funds – including the four funds to which the city contributes directly and four funds for related entities funded by the same taxpayers – have accumulated nearly $47 billion in debt, more than 44 U.S. states. Those pensions are only 34% funded overall, meaning they have 34 cents saved for every $1 in future promises. Pension experts consider plans below 40% funding to be past the point of no return and on the path to insolvency or major cuts.

The money to fund these pensions must come from somewhere, and keeping up with this growing financial burden is a core reason Chicago taxes have increased in recent years. For the most part, recent city tax hikes have not been implemented to provide better roads or sanitation or to reduce the violence plaguing the city. Rather, taxpayers have seen their burdens increase largely in order to fund pension systems.

Local politicians understand runaway pension debt is an issue, yet little has been done to address the problem. Lightfoot herself has sent mixed messages on pension reform, often acknowledging the depth of the problem and calling for change while failing to provide specifics. She has criticized 3% compounded post-retirement annual raises as “unsustainable,” but has not publicly endorsed a constitutional amendment, which is the only way to change them. In contrast, in his last months in office, Emanuel called upon Springfield to send a pension reform amendment to the ballot for voter approval.

In addition to being primarily responsible for Chicago’s increasing tax burden, pensions have also begun crowding out core government services.

This trend has been particularly noticeable at the state level, but it has also begun manifesting itself at the local level. Since 2011, Chicago’s inflation-adjusted pension payments have increased by 239%. At the same time, city spending on services has increased by just 18%.

It is this dynamic that largely prevents Chicago from providing services on par with its high-tax peers in New York and Seattle. Both cities levy high taxes, but in the absence of crushing unfunded pension debt they are able to direct those taxpayer dollars back toward services for their citizens.

City leaders know the rapid rise in pension costs has hurt Chicago’s ability to invest in the core services valued by residents, yet meaningful reform has remained elusive. Rising taxes and declining services can be expected until the state amends the Illinois Constitution to allow for the control of future government pension growth.

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