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Utility Tax On Top Of Hefty Property Taxes Means Even Higher Rents

August 8, 2016

Chicago landlords and homeowners are feeling squeezed like lemons thanks to Mayor Rahm Emanuel’s latest brain storm—a new and quickly escalating “utility tax” on water and sewer bills over the next five years.

 

Mayor Emanuel says the city needs to raise $588 million in new revenue to pay for pensions of teachers, police and firefighters.

 

Chicago homeowners’ tax bills rose an average of 12.8 percent. However, the tax hikes ranged from 25 percent to 30 percent or more in apartment buildings in Old Town and Lincoln Park, and “hot” neighborhoods such as Wicker Park, Bucktown and Logan Square.

 

Landlords already already are passing along the tax hike and sharply increasing water, sewer and garbage-collection fees to tenants in the form of 3-percent to 5-percent rent increases on expiring leases, property managers say.

 

The Chicago property-tax wallop comes at a time when Illinois already is recognized for the dubious achievement of posting the highest median property tax rate in the nation, not to mention the highest sale-tax rate in America.

 

As if the real estate tax bite were not enough, homeowners and landlords of small rental properties should beware of the new $228 million utility tax on water and sewer bills starting with a 7 percent tax in 2017.

 

The proposed utility tax would jump to 14 percent in 2018, and rise to 21 percent in 2019. It would top out at 28 percent in 2020-2021.

 

After that, experts say the tax would rise annually to meet the “actuarially required contribution” to achieve a 90-percent funding ration by 2057 for a Municipal Employees pension with $18.6 billion in unfunded liabilities that is scheduled to go broke by 2025.

 

Mayor Emanuel says the new water-sewer surcharge can be enacted by the City Council in September under the city’s sweeping home-rule power and does not require approval from the Illinois Legislature.

 

Ironically, the new tax on water and sewer bills comes at a time when the city of Chicago is wrestling with the problem of high levels of lead in its drinking water, especially in homes built with lead pipes before 1986 and in aging Chicago Public School buildings.

 

A few weeks ago, the city’s fancy “2015 Water Quality Report” arrived in this writer’s mail box. The six-page report urges homeowners without water meters to join the “MeterSave” program. Just ask the city to install a “free” water meter and Mayor Emanuel will guarantee your water and sewer bill will not increase for seven years.

 

With an annual use of 7,500 gallons of water the average Chicago household currently pays $686 a year for water and sewer services. The new utility tax is expected to cost the average homeowner $4.43 more a month, or $53.16 a year in 2017. In the fourth and fifth years, the added tax burden is expected to grow to about $226 a year.

 

Earlier this spring Mayor Emanuel also launched the city’s new “garbage fees” program. Single-family homeowners now pay a new garbage fee of $19 every other month, or a total of $114 a year. Two-flat owners will pay a $38 garbage fee every other month, or a total of $228 a year.

 

Three-flat owners pay a garbage fee $57 on alternate months or $342 for the year. The garbage fee for 4-unit buildings is $76 every other month, or $9.50 per dwelling unit. The 4-flat owner is billed a total of $456 per year for garbage.

 

Garbage fees now are included in the city’s first unified utility bill, which reflects two months of water, sewer and garbage charges. It is unclear whether the new utility tax will cover the new garbage fee portion of the water and sewer bill. Want to bet it likely will be included?

 

In July, the owner of a North Side 4-flat paid $327 for water, sewer and garbage fee charges for the billing period of May 5th through July 6th. That’s $125.80 for water, $125.80 for sewer and $76 for garbage.

 

If the new 7-percent utility tax is enacted, this landlord will pay an additional $23 every other month in 2017 or $137 more for the year. In 2018, the annual utility tax would jump to $294 based on the 14 percent surcharge. In 2019, at the 21-percent tax rate, the annual utility tax bill would rise to $412. In 2020 and 2021, at the 28-percent tax rate, the annual utility-tax increase tops off at $549.

 

All these tax increases assume the rate of inflation stays the same. Read the back side of your water, sewer and garbage bill.

 

It states: “Beginning June 1st 2016, and every year thereafter, the annual water rates shall be adjusted upwards, if applicable, by applying to the previous year’s rate of inflation, calculated based on the Consumer Price Index-Urban Wage Earners and Clerical Workers (in Chicago) published by the U.S. Bureau of Labor Statistics for the 365-day period ending on the most recent January 1st.”

 

However, any such annual increase in the water rate is capped at 105 percent of the previous year’s rate. “Water cost is $3.81 per 1,000 gallons, or $28.52 per 1,000 cubic feet. Sewer rates are 100 percent of the water rates,” the bill states. Penalties accrue at a rate of 1.25 percent per month, or 15 percent per year, on late balances.

 

So what’s a home or apartment owner to do? Stop watering the lawn? Ask apartment dwellers to take fewer showers, flush less, and drink bottled water? Or, just raise rents to cover the surcharge?

 

For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.

 

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“The book is Escaping Condo Jail by Sara Benson and Don DeBat. I would say that anybody thinking about buying a condo, or even anybody serving on a condo board, or anybody who has any connection to a condo, this is must reading—all 600 and something pages. Thanks a lot for a great book!”

 

Steve Sanders, “Your Money Matters” WGN TV, December 22, 2014

By Don DeBat

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