“Chicago is thriving, but the fiscal challenges before us are significant,” Mayor Rahm Emanuel told a packed City Council Chamber as he began his fifth budget address that includes a $544 million property tax increase to be phased in over four years.

[Full Speech – Full Budget Document]

The proposed $7.84 billion budget will “finally begin to reflect the true annual cost of operating the City,” the Mayor assured aldermen, as most of them focused on printed copies of his speech instead of looking at Emanuel as he made his remarks.

A press release from the Mayor Monday laid out much of what to expect yesterday, but there were still a few surprises, including a plan to privatize the City’s 311 call system, adding $1 million in savings. However, the expected items mentioned in the speech were:

• $170 million in savings and reforms, like putting street sweeping on a grid system saving $3 million, reducing non-personnel costs by $21 million and healthcare savings totaling $40 million.

• $60 million from a $9.50 monthly garbage collection fee.

• $60 million from rideshare and taxi fees.

• $1 million from a tax on e-cigarettes.

Posing the almost unimaginable scenario of police and fire cuts, and reducing garbage collection from once a week to twice a month, Emanuel socked Council with his property tax increase.

The Mayor’s budget calls for a phased-in property tax increase starting with an additional $318 million this year, $109 million in 2016, $53 million in 2017, and $63 million in 2018. All of the additional revenue will fund the City’s police and fire pension obligations.

The Mayor’s budget anticipates the FY2016 property tax levy will bring in a total of $1.26 billion, with the largest share of that money, 36%, earmarked for the Policemen's Annuity and Benefit Fund (PABF). 15% of the levy will go toward the Firemen’s Annuity and Benefit Fund (FABF).  

The 2016 proposed budget recommends a total $978.3 million contribution to the city's four pension funds, more than doubling last year’s contribution of $421.1 million. The pension payment will be funded with $786 million in revenue from property tax bills and $192.3 million from other sources.

The pension payments are based on an amended timeline that has yet to be approved by Springfield. Under current state law (Public Act 96-1495) the City’s Police and Fire pension plans must achieve a 90% funded ratio by the end of 2040. The Police Pension is only 26% funded with a $11.73 billion unfunded pension liability, and the Firemen’s Pension is only 23% funded with a $4.513 billion unfunded liability, according to the City’s 2015 Annual Financial Analysis.

The Mayor’s proposed legislation in Springfield, SB777, would stretch pension payments through 2020, in addition to pushing the 90% funding requirement to 2055. Although it has passed the Illinois House and Senate, it has not been sent to the Governor for consideration, as Rauner has not indicated if he will sign it or not. If enacted, the proposed pension payments in the Mayor’s budget would remain the same. If it fails, the city would be forced to make a bigger payment next year and even bigger ones in the future.  

The Mayor is pushing to expand the property tax exemption for homeowners whose properties are valued at $250,000 or less. The plan needs approval from Springfield, and Mayor Emanuel noted in his budget address that Illinois Speaker Mike Madiganand Senate President John Cullerton both agreed to move the legislation forward with hearings on the plan scheduled for later this week.

Finally, on debt, the city is doing a bit less than previous years. While next year’s proposed budget appropriates $593.5 million to pay down general obligation debt, last year, the city spent $623.9 million to pay down general obligation debt.

The City Council will hold hearings on the Mayor’s budget plan through October before a scheduled vote on October 28th.