The Chicago City Council approved a $7.8 billion dollar budget on October 28, 2015 with the largest property tax increase in history. The 2016 budget goes into effect January 1, 2016. The full budget can be viewed at www.cityofchicago.org/obm.
As a result, Chicago property taxes will increase by a record $543 million over the next four years to pay for police and fire pensions, plus an additional $45 million for public school construction.
Chicago faces a $20 billion unfunded pension liability. State law requires full funding of annual pension payments beginning in 2016. The city has asked lawmakers to allow the payments to be spread out but that hasn't yet been approved.
In addition, the Illinois Supreme Court is set to rule on the constitutionality of a 2014 city pension reform law. A decision against the city could further complicate the budget.
Commercial Property Hardest Hit
Mayor Rahm Emanuel is asking the legislature to exempt residential properties valued at $250,000 or less from the property tax hike along with an expanded homeowner’s exemption. Once enacted, the central business district and commercial / industrial properties will wind up paying about one out of every four dollars of this property tax increase.
The Cook County Clerk’s Office had previously estimated that a $500 million property tax hike would result in an additional $3,500 in property taxes for the owner of a $1 million commercial property.
Credit Rating at Stake
If Chicago cannot get its finances under control, it faces further downgrades by credit rating agencies. The city's bond rating was already dropped to "junk" by Moody's Investors Service earlier this year.
Both Moody's and Fitch Ratings said the use of higher property taxes to pay pensions is a positive step. Standard & Poor's added that Chicago's financial problems remain "substantial" and may take years to rectify.