Dean’s Challenge Chicago: Taxes, Non-Taxes, & TIFs Paula R. Worthington September 2012.
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Transcript of Dean’s Challenge Chicago: Taxes, Non-Taxes, & TIFs Paula R. Worthington September 2012.
![Page 1: Dean’s Challenge Chicago: Taxes, Non-Taxes, & TIFs Paula R. Worthington September 2012.](https://reader034.fdocuments.us/reader034/viewer/2022051401/56649e835503460f94b8500e/html5/thumbnails/1.jpg)
Dean’s ChallengeChicago: Taxes, Non-Taxes, & TIFs
Paula R. WorthingtonSeptember 2012
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Outline
• Overview: budget gaps, city revenues, measures of municipal financial health
• City of Chicago– Funds & revenues– Taxes: sales, sin, property– TIFs– Pensions
• Resources: IG, Civic Fed, Pew, Lincoln Inst
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Big picture: budget gap improving
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Chicago worse off than other cities
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Sources of revenue for local governments—cities alone would be somewhat different—more sales and gross receipts taxes, less IG transfers
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City Revenues Still Falling Nationwide
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Cities & other local governments “squeezed” by declines in own-source
& state revenue
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States have their own budget woes….
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Many cities have raised fees
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Fund balances may have hit bottom
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Civic Federation Project
• Financial indicators for 13 large US cities– Fund balance ratio, debt service ratio, etc.
• Chicago in bottom ½ or 1/3 of group• Doesn’t even include liabilities from
underfunded pensions and other post-employment benefits
• Data through FY2010 shows little improvement, though FY 2011 may be better
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Turning to City of Chicago....
• What are revenue options?• What limits does city face?– Legal– Political– Economic• Mobility of residents, jobs, and capital• Elasticites!
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Where does Chicago get its money?
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Several years of “one-off” revenues…
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Where did one-shot $ come from?
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Asset lease funds practically empty….
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Taxes I: Can Chicago raise its sales tax?
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City expects $560 million in FY2012
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Why not tax services as well as goods?
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Illinois taxes few services, and Chicago uses same sales tax base…..
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Why not raise “sin” taxes?
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What about property taxes?
• Remember…..property owners pay taxes to many jurisdictions, not just the City!
• Other jurisdictions include– Chicago Public Schools– Cook County– Chicago Park District– Metropolitan Water Reclamation District
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City uses property taxes to cover debt services & pension contributions
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Full “burden” of City property tax shows through as levy, TIFs, and
library levy
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Why not go after nonprofits?
• Currently exempt from paying property taxes• Litigation on-going related to health
organizations (e.g., hospitals) and tax-exempt status
• Other options– PILOTs– User fees and charges for city services provided
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Chicago water & sewer rates are currently subsidized for nonprofit
property owners…..
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What about PILOTs?
• Payments in Lieu of Property Taxes• “Voluntary”, infrequently used, and
contentious• Don’t typically generate huge $ (less than 1%
of general revenues)• Urban Inst-Brookings Tax Policy Center &
Lincoln Institute of Land Policy are resources
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Time to talk about TIFs!Lots of money: over $500 mil!
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How do TIFs work?
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TIFs widely used in Chicago and suburban Cook County
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TIFs can raise tax rates…..
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Do TIFs Generate Economic Development?
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How are TIF funds spent?
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TIF funds be “ported” between TIFs on a limited basis
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Bottom line on TIFs?
• Act as a somewhat opaque way of raising property taxes and directing more $ towards specific local economic development projects
• Reforms are coming, but system seems likely to remain in place for near future
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What about pensions? Chicago’s four city plans are underfunded
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Sources of underfunding…..
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New state law forces city to “up” its funding to attain 90% funding by 2040
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Resources?
• Inspector General http://chicagoinspectorgeneral.org/major-initiatives/budget-options/
• Civic Federation http://www.civicfed.org/• Pew Center http://
www.pewstates.org/projects/american-cities-project-328139
• Lincoln Institute http://www.lincolninst.edu/