Chicago City Council Signs Off on Phone Surcharge

CHICAGO - The Chicago City Council approved a 56% increase in the city's emergency services surcharge that's tacked on to phone bills, staving off the need for a $50 million property tax increase next year to cover the first year of higher contributions due under a pension reform plan.

The special statewide tax on phones to fund emergency services was set to expire this summer. Under the legislation approved by state lawmakers this spring, Chicago received the ability to raise the city's levy by 56% on wired lines and wireless phones. The council acted on the measure Wednesday.

The current city levy will rise to $3.90 from $2.50 beginning Sept. 1 on cell and landlines. The tax on pre-paid wireless phones will rise Oct. 1 by 2 percentage points. The surcharge is expected to raise $10 million this year and then $50 million annually.

The city currently subsidizes its office of emergency management with general fund revenues of $50 million annually and the additional surcharge revenue will now free up those funds for other uses.

"Property tax increases can now be off the table this year, and this ordinance will allow us to pass four consecutive budgets without raising property, sales or gasoline taxes," Mayor Rahm Emanuel said in a statement. "By working with many Aldermen to identify an alternative revenue source, the city is living up to its obligations to fund the retirement of more than 61,000 workers and retirees in the municipal and laborers fund."

Emanuel's initial plan to overhaul two of the city's four pension funds relied on a $50 million annual increase in city property taxes for five consecutive years, providing an infusion of $750 million. Under pressure from Gov. Pat Quinn, Emanuel dropped language requiring a property tax hike from the bill before state lawmakers. He then dropped the plan to use the property tax levy to cover the first year payment after state lawmakers approved the emergency surcharge increase.

The city hasn't said how it will cover the incremental increases in future years, but it's expected that property taxes will eventually be tapped.

The pension package aimed at stabilizing the municipal and laborers funds also relies on benefit cuts and higher employee contributions. A legal challenge is expected. The city is carrying $19.5 billion of unfunded obligations in its four pension funds for a collective funded ratio of 35%.

The city faces a $600 million payment spike next year for its police and fire funds and has not said how it would address it although it's expected that state legislation phasing in the spike will be sought next year.

The city will release its preliminary budget figures and annual financial analysis laying out its fiscal challenges in the next year later this week.

For reprint and licensing requests for this article, click here.
Illinois
MORE FROM BOND BUYER