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8-Aug-16 – Chicago landlords and homeowners are feeling squeezed like lemons thanks to Mayor Rahm Emanuel’s latest brainstorm – 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 to 30 percent or more in apartment buildings in Old Town and Lincoln Park, and hot neighborhoods such as Bucktown, Logan Square, and Wicker Park.

Landlords already are passing along the tax hike and sharply increasing water, sewer, and garbage collection fees to tenants in the form of 3-5 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 sales tax rate in America.

New utility tax will start big and grow

As if the real estate tax bite was 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 seven 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 ratio 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.

2015 Water Quality Report A few weeks ago, the city’s fancy 2015 Water Quality Report arrived in this writer’s mailbox. 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 four-unit buildings is $76 every other month, or $9.50 per dwelling unit. The four-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 four-flat paid $327 for water, sewer, and garbage fee charges for the billing period of May 5 through July 6. That’s $125.80 for water, $125.80 for sewer, and $76 for garbage.

Escaping Condo Jail

If the new seven percent utility tax is enacted, the 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 for 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?