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Property taxes will fund most of CTU's $1.5 billion new contract

Crain's Chicago Business

Thursday, November 7, 2019  |  Article  |  Greg Hinz

Taxes, property (87)

Chicago Public Schools says it's confident it will be able to pay for the contract—but only with $100 million a year in new property taxes and aid from the state, aid that may be dependent on enacting a graduated income tax.

Chicago homeowners and other property owners will be on the hook for most of the cost of Chicago Public Schools' record $1.5 billion contract settlement with the Chicago Teachers Union, CPS officials are conceding.

And right behind them in the pay line will be those subject to Gov. J.B. Pritzker's proposed graduated income tax—if it's approved by voters in a referendum a year from now, that is.

CPS officials have been relatively mum about who will provide the extra $1.5 billion needed under the five-year CTU deal. But after saying in a statement yesterday that costs associated with the contract with CTU and a division of SEIU "will be exceeded by the growth in revenue from existing state and local revenue streams" in future years, I asked CPS to get specific.

'EXISTING PROPERTY TAXES'

"Existing property taxes" will be the leader, CPS replied. "Under our current property tax levies, we have seen additional revenue between $100-200 million a year ($181M in FY18 and $102M in FY19). In the years ahead, we expect to see similar levels of growth, which on its own would cover the approximately $500 million in annualized additional spending by the end of the contract."

That appears to mean that CPS will continue its traditional policy of "levying to the cap," or imposing as much of a hike as is allowed under state property tax laws.

While CPS has levied to the cap for many years, that policy has sparked increasing public resistance, with CPS's total property tax levy leaping from $2.36 billion in 2016 to $3.124 billion in fiscal 2020, an increase of almost a third in just four years, according to the Civic Federation.

Beyond that, one of the purposes of the new state aid formula for schools that recently took effect was to take pressure off for continued property tax increases. But with the contract in place—assuming it's ratified next week by CTU members—money to pay for it has to be obtained from someone.

PROPERTY OWNERS

According to the Civic Federation, "someone" in the CPS 2020 budget is a broad range of property owners. Roughly $40 million more is being obtained citywide by levying to the cap, $17 million from construction of new property, and $46 million from a new citywide tax designed to cut CPS pension debt. CPS in 2020 also is getting $46 million more from a new transit tax increment financing district that covers property within a half mile of most of the north branch of the Chicago Transit Authority's Red Line. Except for that law, the $46 million would be available to cut property taxes in other parts of the city.

In any event, CPS says that it conservatively expects an extra $100 million a year from property taxes. By the fifth year, that would amount to $500 million a year, or $1.5 billion over the 5-year period, enough to pay for the new contract, though not other expense hikes.

CPS says it's also expecting to get roughly $60-70 million additional a year under the new state aid formula. But though the system says that's not dependent on passage of the graduated income tax, it's questionable whether the state can afford to ramp up spending for CPS and other districts around Illinois that much every year without new income tax revenues.

At CTU, officials are resisting the notion that their new contract largely will be funded by already over-burdened Chicago property taxpayers.

"We've repeatedly called for more progressive forms of revenue to support CPS public schools: a reinstatement of the corporate head tax; an end to TIF districts and TIF handouts that privilege the wealthy few at the expense of public needs," CTU spokeswoman Chris Geovanis said in an email after I asked for a response to the CPS statement.

And, she added, "CPS needs to reset its priorities to reduce the waste of public dollars, and support more equitable mechanisms to support public education across the state, including right here in Chicago."

Says a schools spokesman, "CPS has seen annual increases in state and local funding in recent years, which we expect to continue in the years ahead. We expect to see the most growth in these two areas."

A gubernatorial task force has been working on possible ways to relieve pressure on local property taxpayers, but so far has reported little progress.