Mayor Lori Lightfoot told Chicagoans nearly two years ago that her decision to tie how much the city of Chicago collects in property taxes to the rate of inflation made practical sense for both the city and taxpayers, and also showed she had a political discipline that her predecessors lacked.
After all, inflation for most of the previous two decades had hovered at or below a very reasonable 3%.
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But as the first-term mayor kicks off her election-year budget push during the worst inflation crisis in at least two generations, Lightfoot has to decide how strong her political will really is. If Lightfoot decides to collect the full amount allowed under her annual tax formula, the tax increase would nearly quadruple in 2023 to $85.5 million, according to a Tribune analysis of the property tax levy and the mayor’s policy.
While directed at property owners, the tax is likely to affect not only homeowners but renters and businesses across the city, hitting Chicagoans already reeling from higher costs at gas pumps and in grocery stores.
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What’s more, the possibility of a tax hike adds to the anxiety and uncertainty property owners are already facing because Cook County property tax bills for this year are late and officials have said there likely will be delays in upcoming years as well.
River North restaurateur Michael Nahabedian said he’s concerned about “all the trickle-down impacts” a potential citywide tax increase will have.
“We worry about whether the staff will be able to afford to live nearby, we worry about the costs for people who are thinking about coming to the restaurant to eat,” said Nahabedian, who leases a space for his restaurant, Brindille. “We worry about the next lease. And we want to see something from the city for these rising costs.”
While national inflation is hovering around 9%, the mayor’s plan caps any inflation-based tax hike at 5%. And it will be up to the mayor to decide if the city will take the full 5% bump under her signature tax program or some percentage less.
If Lightfoot does raise taxes, Northwest Side landlord Saima Causevic was blunt about what would happen next: “We will pass the cost on to tenants, because we have to, but they can’t afford to pay more. They just can’t.”
The Lightfoot administration is starting its 2023 budget process with three public forums beginning Thursday at Kennedy-King College, and the question of whether the mayor will utilize her full taxing power will likely come up.
Facing a difficult February reelection bid against a growing field of challengers, as well as a restive Chicago City Council full of aldermen who are also seeking new terms next year, she could decide to forego some or all of it.
Aldermen will have their own politically fraught election year financial decisions to make.
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In 2006, City Council members set up a system in which they stopped voting annually about whether to give themselves raises and instead tied automatic salary bumps to inflation.
For 2022, aldermen received automatic raises of nearly 5.5%, which meant a $6,743 increase for the highest-paid council members, who now get paid $130,000 a year. The rate for their 2023 raises hasn’t yet been set, but there is no inflation cap on aldermanic pay bumps so with the 9% inflation rate, the salary hike next year could be massive.
All 50 members of the council are always able to individually turn the raises down, a decision they typically have to make in September, five months before the February municipal election. Last year, 45 out of 50 aldermen took the raises, but they weren’t months away from facing voters at that point.
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Lightfoot, meanwhile, campaigned in 2019 as an antidote to politically motivated budgeting.
Her argument at the time was that by tying the annual bumps to inflation, she would move Chicago away from the traditional yo-yoing effect of mayors raising taxes by big amounts immediately after winning an election, only to enact more austere budgets that don’t require such increases when their terms are nearly up.
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Now faced with the ugly reality of this year’s skyrocketing inflation, Lightfoot could decide to cut back the property tax increase, which could help her with voters but also undermine her initial arguments. Still, that might be preferable to trying to defend herself on the campaign trail against charges she heaped more financial pain on Chicagoans during an inflationary crisis.
In addition, the mayor — who has pledged to do a better job working with aldermen after numerous high-profile clashes with members of the City Council during her first term — may not want to try to round up support in the body for an unpopular election year tax increase.
Because Lightfoot made the inflationary tax trigger an automatic part of each budget going forward to help pay the city’s underfunded pensions, aldermen wouldn’t need to vote specifically on the $85.5 million increase. But they’d still need to OK the entire city budget, which would include that tax hike. And with so much attention on inflation, it might not be an easy lift to round up 26 votes for that overall budget package.
“She will have a difficult time” getting a majority to support an $85.5 million tax increase, said Wrigleyville Ald. Tom Tunney, 44th. “This was to be the year of the easy budget vote.”
Lightfoot’s administration was noncommittal when asked recently whether the mayor plans to take the full $85.5 million with her reelection bid looming.
“The City’s 2023 budget process has just begun,” a spokeswoman said in a statement. “We will be working over the next several months on the Budget Forecast which then leads to the development of the 2023 Budget. We will continue to ensure that we can provide essential City services to our residents and effectively address priority areas. As with every budget, Mayor Lightfoot works to balance the needs of our community with the financial stability of the City.”
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The mayor’s political calculus also will undoubtedly take into account whether she wants to defend that hike while residents are struggling and one of Lightfoot’s presumed opponents in February, mayoral candidate and businessman Willie Wilson, is giving away millions of dollars in free gas to drivers around the city in an attention-grabbing move to help a few people fill their tanks.
Lightfoot’s move to tie taxes to the annual change in the national consumer price index came at an inopportune time.
Starting in December 2003, the biggest December-to-December increase in that inflation index number prior to the most recent one was 4.1% in December 2007, according to the federal Bureau of Labor Statistics.
In 14 of the 18 years prior to 2021, inflation went up less than 3% December to December.
Lightfoot included a clause in her 2021 budget tying annual property tax bumps to the increase or decrease in the CPI between prior Decembers. The 2022 budget was the first one in which it took effect automatically.
It’s hard to say how much the 2023 property tax increase would cost homeowners and other property owners until annual property assessments are completed and the taxes on new properties are added to the tax rolls.
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The city says this year’s $22.9 million increase — based on inflation rising 1.4% between December 2019 and December 2020 — cost the owner of a $250,000 home about $18 more per year. Those increases carry over every year and into the future. Lightfoot also raised property taxes another $25 million this year to help fund her capital spending plan, and assessed an additional $28.6 million in property taxes on new properties.
The potential $85.5 million increase in 2023 represents a 5% increase to the city’s $1.71 billion 2022 property tax levy. While inflation went up 7% from December 2020 to December 2021, Lightfoot’s 5% ceiling rule on the annual tax keeps it from going even higher.
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