By: Ted Dabrowski and John Klingner
Don’t be surprised if Chicago Mayor Lori Lightfoot ends up hiking property taxes multiple times during her term.
She doesn’t have a backup plan should many of her 2020 budget assumptions go wrong. And with spiking city pension costs and a new school contract that increases spending by $1.5 billion over five years, Lightfoot could break the property tax hike record set by Rahm Emanuel in his second term.
That should scare Chicago homeowners. Chicagoans have already missed out on 20 years of growth in their retirement nest eggs as a result of the city’s collapsing finances. Windy City home prices – when adjusted for inflation – haven’t grown since 2000.
Chicago sits at the bottom of the 20-city Case-Shiller Index – a leading measure of U.S. home prices – with only Cleveland and Detroit home values performing worse since 2000. Chicago homes are up just 45 percent over the entire period, slightly less than inflation (up 51 percent).
In contrast, residents in almost every other major city have seen their homes grow far more in value. Los Angeles, San Francisco, San Diego and Seattle lead the country and all have grown 160 percent or more.
And it looks like Chicago home prices might soon begin to drop. As S&P reported recently, seasonally adjusted Chicago home prices in September grew just 0.8 percent when compared to the same month last year. That’s the lowest growth the city has seen in seven years.
Falling values at the top of the current bull market should signal to politicians that property tax hikes – and in fact, any tax hike – are the last thing Chicago homeowners need.
That small year-on-year increase in September is the second worst performance in the country, second only to San Francisco. What this shows is how poorly Chicago homes have been doing in both the short and long term.
More taxes on the way
Unfortunately, more property tax hikes are likely on the way thanks to the structural holes in the mayor’s budget, the city’s ever-growing pension costs, and the new CPS teachers contract.
Far from being balanced, the city’s budget is full of structural holes:
- The one-time $200 million front-loaded “savings” from a bond refinancing scheme in 2020 will create a $200 million hole in 2021 and thereafter.
- Legislation for a progressive real estate transfer tax and new Chicago casino language failed to pass the General Assembly, leaving at least a $100 billion hole in future city budgets.
- It’s unknown if Lightfoot will be able to get the $149 million in savings by implementing “zero-based” budgeting.
- Nor has she offered any details on how she’ll cut another $141 million through “improved fiscal management.”
On top of those holes, higher pension payments alone will cost the city $600 million more in 2023 than what it will spend in 2020.
And even more pressure is coming. The city’s police and fire unions are likely to make big demands in their upcoming contract negotiations, particularly since Lightfoot granted the CTU what she says is the “most generous contract” in the union’s history.
The above also doesn’t include the property tax increases needed to pay for Chicago Public Schools’ new contract. CPS’ expenses will be at least $500 million more annually by the time the new contract is fully implemented in five years.
In the end, Lightfoot could end up hitting Chicagoans with an additional $1 billion in property taxes just for the city itself. And CPS will cost Chicagoans even more.
Read more about Chicago’s financial troubles:
- Lightfoot’s budget won’t stop Chicago’s downward spiral
- Why Chicago’s Lightfoot should push for a pension amendment, not tax hikes
- Chicago Public Schools offers CTU record contract even as enrollment shrinks by another 6,000 students
- US stock markets up 200%, yet Chicago pension hole deepens 140%
- It’s not just property taxes Illinoisans should be worried about. It’s their home values, too.