When Mayor Lori Lightfoot persuaded aldermen last year to tie annual property tax increases to the rate of inflation, she argued it would give the city and its taxpayers a degree of certainty, while sparing the City Council from having periodically to enact huge, unpopular hikes.

Yet the $16.7 billion budget aldermen approved Wednesday — the first containing the automatic increase — includes a tax bump to local property owners that exceeds the cost-of-living increase calculated for the Chicago area by about 55%.

That’s because the Lightfoot administration opted to calculate the tax hike using a nationwide consumer price index from the Bureau of Labor Statistics, rather than the one the federal agency maintains just for the Chicago area.

So rather than a 0.9% change and a tax hike of $14.7 million next year, Chicago property owners will share a $22.9 million increase on a 1.4% change, which will then carry over to 2023 and beyond.

The city's decision to use a national rather than local consumer price index means higher tax bills next year for Chicago properties, like these in the Pilsen neighborhood.
The city’s decision to use a national rather than local consumer price index means higher tax bills next year for Chicago properties, like these in the Pilsen neighborhood. (Zbigniew Bzdak / Chicago Tribune)

Lightfoot’s budget calls for spending federal COVID-19 recovery money on affordable housing, mental health services, anti-violence initiatives and other programs that lots of City Council members like.

And Lightfoot administration officials estimate the $22.9 million hike tied to the national CPI will only cost the owner of a $250,000 home about $18 per year. Another $19 increase on such a homeowner’s property tax bill will come from a $25 million tax hike the mayor has proposed to pay for her capital spending plan. The final piece of the tax increase, $28.6 million, will only be assessed on new properties, bringing the total to $76.5 million.

A Northwestern University finance professor said the local CPI would better represent the true change in the cost of living for Chicagoans.

And the property tax increase remains a sore spot with many aldermen. The council Finance Committee passed the mayor’s tax levy last week by a vote of 19-12. The no votes largely came from aldermen from wards with more expensive homes, where many residents are increasingly fed up with the property tax situation.

With the passage of the budget, those and other Chicago properties will see a property tax cost-of-living increase that’s based on inflation in cities across the country, including San Francisco and New York.

Recent history indicates that using the national CPI often would have been a bad deal for local property owners.

Just once since 2012 has the December-to-December change in the consumer price index for the Chicago area — which includes nine counties in Illinois, four in Indiana and one in Wisconsin — been larger than the U.S. city average, according to the U.S. Bureau of Labor Statistics. That was in 2014.

That’s important, as the Lightfoot inflation-tied tax increase will remain part of the city budget until it brings its woefully underfunded municipal pensions up to funding levels set by the state, unless the City Council repeals the automatic tax increase. In other words, this year’s property tax levy becomes the basis on which next year’s increase will be calculated, so the effect of the council’s decision is compounded over time.

So why use the national number?

The city wanted to sync its CPI with the one the Chicago Park District and Chicago Public Schools are required to use for their annual property tax increases, according to city Finance Department spokeswoman Rose Tibayan.

A state law caps the increases non-home-rule taxing districts like the Park District and CPS are allowed to adopt. They can’t go above the year-over-year change in the national urban inflation rate.

But the city of Chicago is a home rule district, so it can use whatever number it wants. And unlike for smaller government bodies around Illinois, there’s a federal consumer price index number specifically tracking inflation in and around Chicago.

Asked why it makes more sense for the city to match those other taxing entities than it does to use the Chicago region CPI, Tibayan declined further comment.

Brad Cole, executive director of the Illinois Municipal League, said it was “reasonable and responsible” for the city to use the national CPI, noting that Chicago is an international city on par with other big metropolitan areas across the U.S., and the difference between the local and nationwide CPI will usually be minimal.

But Phillip Braun, a clinical professor of finance at the Kellogg School of Business at Northwestern University, said the city should use the Chicago region number.

“It’s a fair idea (to link the tax increase to the CPI), but they should be using the Chicago metric,” Braun said. “… It’s more reflective of the true costs.”

Because the nationwide rate has been higher than Chicago’s, “they can raise more money” by using it, Braun said. “It’s the only reason I can understand” that the city would choose the U.S. CPI, he said.

Local inflation frequently lags because the nationwide number includes data like the cost of rent and home purchases in cities that are getting more expensive faster than Chicago, Braun said.

If the city used the Chicago-area inflation change for 2022, the hit to the owner of a $250,000 home would be about $12 for the year, instead of the $18 using the national number, according to Tibayan.

We don’t yet know what the inflation change will be for December 2020 to this December, the peg for the 2023 property tax change. But a much bigger increase could be coming.

The September-to-September increase on the national urban CPI index was 5.4% — above the 5% ceiling Lightfoot built into her inflation escalator property tax clause.

The Chicago-area increase was 4.5%.