Video: The WTTW News Spotlight Politics team breaks down the day’s biggest news. (Produced by Blair Paddock)
Mayor Brandon Johnson said Wednesday Chicago faces a projected $538 million budget shortfall in the 2024 fiscal year, but vowed to “hold the line” against any increase in the property tax levy.
The budget gap is nearly three times the size of the gap forecasted by former Mayor Lori Lightfoot as she left office but is still smaller than the annual budget gaps the city had to close between 2020 and 2022, when the COVID-19 pandemic triggered an economic catastrophe that blasted a massive hole in the city’s finances.
Johnson said in a statement that he had inherited a complex financial situation from Lightfoot, complicated by the escalating cost of sheltering, feeding and caring for the more than 13,500 men, women and children sent to Chicago from the southern border – as well as those who will arrive in the coming months.
“The projected budget gap paints a realistic picture of our city’s financial condition, which will require careful consideration and strategic action,” Johnson said. “In the coming weeks, we will be taking a much closer look at the challenges we face, and how we will address those challenges reasonably and responsibly, and not on the backs of workers and working families.”
While new mayors often blame their predecessors for whatever financial mess they find after taking office, Lightfoot’s decision to pull the curtain back on the city’s financial forecast months earlier than normal made that more difficult for Johnson.
The size of the deficit will complicate Johnson’s efforts to fulfill campaign promises to use the city’s financial resources to invest in working-class Chicagoans.
“On my inauguration day, I told the city that I wanted to re-route the rivers of prosperity to the banks of disinvestment so that no one in the greatest city in the world goes thirsty,” Johnson said in a letter accompanying the forecast. “This effort will take time, and it will require our partnership. Let us not be discouraged by the obstacles ahead, but hopeful about the vitality and hope we can restore across Chicago by working together.”
An anticipated surplus from the city’s Tax Increment Financing Districts will offset some of the deficit, and Johnson vowed close the rest with “expenditure reviews, revenue enhancement measures, and potential reallocation of resources,” he said in a statement.
This year’s shortfall comes after city officials closed a $170.6 million budget gap in the city’s 2023 spending plan. Before Lightfoot left office, her office issued an unusual mid-year budget forecast that predicted the city’s 2024 budget gap would be $85 million – or $175 million without a property tax hike tied to inflation.
Lightfoot urged Johnson to raise the city’s property tax levy to keep pace with inflation because it is the most effective way for city officials to raise revenue and ensure expenses do not outstrip costs.
The forecast released by Johnson does not rely on an increase in property taxes on existing properties to keep up with the rate of inflation. During the mayoral campaign, Johnson vowed to reverse the policy imposed by former Lightfoot to automatically hike property taxes by the increase in the consumer price index or 5%, whichever was less.
That policy proved politically radioactive during last year’s budget negotiations, and Lightfoot dropped the plan shortly after releasing the 2023 forecast.
Chicago’s financial picture has been buoyed in recent years by the city’s red-hot real estate market, a faster than anticipated recovery from the depths of the COVID-19 pandemic and nearly $2 billion in federal aid designed to help the city withstand the ravages of the economic catastrophe that the pandemic triggered. Chicago ended 2022 with a surplus of $307.3 million, according to the city’s annual financial report.
However, that post-pandemic boom appears to have cooled significantly, in part because of the fast rate of inflation and efforts by federal banking officials to combat that surge by raising interest rates, Johnson said. In addition, Chicago has seen “uneven economic growth through the first six months of 2023,” according to the forecast.
Those challenges include a “slow down of activity in the real estate market,” which led to a significant drop in Real Estate Transfer Tax revenue, as compared with projections relied on by the Lightfoot administration. The city will end the year $82.1 million under budget, with revenues coming in 37% lower than expected, according to the forecast.
Unlike in recent years, Chicago officials will not be able to rely on federal aid designed to blunt the economic impact of the COVID-19 pandemic to bridge a shortfall, or boost spending on programs designed to strengthen the city’s social safety net.
Under rules established by the federal government, Chicago officials have until 2026 to spend their share of the federal relief package known as the American Rescue Plan signed into law by President Joe Biden – but must earmark those funds by the end of 2024. The Chicago City Council approved plans in 2022 to supplement those funds by borrowing an additional $660 million.
Chicago’s 2024 spending plan is the first that will reflect gambling revenues from a casino, with a temporary gaming palace now open at Medinah Temple. The forecast released by Johnson does not detail how much the city expects to earn from that temporary casino, which are reserved by state law for police and fire pension payments.
The city’s finances will continue to be pinched by soaring pension payments, as the city complies with a state law that requires two of Chicago’s funds be funded at a 90% level by 2055 and the other two by 2058, ensuring they can pay benefits to employees as they retire.
In 2024, state law requires Chicago to pay more than $2.41 billion to its pension funds. Johnson also proposed making an additional payment to the city’s four pension funds of $306.6 million, following a policy put in place by Lightfoot, to prevent “further growth of the city’s unfunded pension liabilities,” according to the forecast.
The forecast does not detail how much Johnson expects to ask the City Council to earmark to care for the migrants sent to Chicago from the southern border in 2024. However, approximately $200 million of the deficit was due to the rising cost of caring for migrants, who are all in the country legally after requesting asylum but are not permitted to work without special permission, according to a spokesperson for the mayor.
With approximately 6,500 people taking up every available spot in 19 city shelters in mid-September, more than 2,000 people are being forced to sleep on the floors of police stations across the city and at Chicago O’Hare International Airport and Midway International Airport, according to city data released by the City Council’s Committee on Immigrant and Refugee Rights.
City officials had expected to spend $144 million in 2023 to care for the migrants, who are all in the country legally after requesting asylum but are not permitted to work without special permission.
However, a significant acceleration of the humanitarian crisis since May means it will cost the city at least another $94.3 million to care for the migrants through the end of the year, according to the mayor’s office. Opening the winterized tents to serve as base camps for the migrants who would otherwise be sent to police stations would add an additional $158 million to the city’s costs, according to projections shared with alderpeople.
That means the total cost to Chicago taxpayers to care for the migrants through the end of 2023 could total $302 million, according to those projections.
The city’s projected budget deficit in 2024 is also being fueled by a $214.4 million increase in salaries, wages and benefits due to the city’s unionized employees, according to the forecast.