Politics
No Quick Fix for Chicago’s Budget Woes That Are Rooted in Decades of Mismanagement, Civic Federation Says
(Michael Izquierdo / WTTW News)
Chicago’s dire financial condition is rooted in decades of mismanagement, leaving Mayor Brandon Johnson with no quick fixes that will bridge a projected $982.4 million budget shortfall in 2025, according to a new report from the Civic Federation.
Chicago is staring into a financial abyss after hitting the so-called “fiscal cliff,” with Chicago’s federal COVID-19 relief funds exhausted, according to Joseph Ferguson, the head of the nonpartisan budget watchdog group and the city’s former inspector general.
“A generation-long persistence in structurally imbalanced budgets, coupled with high pension and debt burdens, mean the city will face enormous budget shortfalls in the coming years,” Ferguson wrote.
Chicago’s finances remain structurally unbalanced, pinched by soaring pension costs, spiraling personnel costs and a massive amount of debt, according to the report. The city’s fiscal stability is also threatened by the crises facing the Chicago Transit Authority and the Chicago Public Schools. Both agencies survived the COVID-19 pandemic with federal financial assistance, and must now stand alone after the ravages of the pandemic.
The report from the Civic Federation does not make specific recommendations to Johnson, who is set to lay out his plan to fill not just the shortfall facing the city in 2025 but also the $222.9 million gap in this year’s city budget. The City Council faces a deadline of Dec. 31 to approve a spending plan.
However, the report urges the city to eliminate “unneeded or dormant” positions that are vacant. That could shrink the city’s overall deficit by hundreds of millions of dollars and reduce the city’s budget for the Chicago Police Department by eliminating as many as 1,800 vacant positions that the city has been unable to fill for more than two years.
Another option is to order a “long-term furlough of employees across city departments, effected through an unpaid day off every two-week pay period,” according to the report.
“A commensurate pay reduction for city executives and elected officials should be considered as a demonstration of equitable burden-sharing both within government and between government and the public, which may be called upon to take on increased financial burden or reductions in services or effectiveness of service,” according to the report.
The city faces a $2.85 billion pension bill in 2025, according to city records, in order to comply 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.
The budget projections include an additional payment to the city’s four pension funds of $272 million for the third year in a row. That will prevent the “further growth of the city’s unfunded pension liabilities,” officials said.
But Ferguson suggests that additional payment not be made this year because of the city’s budget crisis. That could alarm Wall Street ratings agencies, prompting them to lower the city’s credit rating and make it more expensive for the city to borrow money.
However, the city will likely need to raise taxes, Ferguson wrote. The former inspector general also warned city officials against relying on taxes from Chicago’s temporary casino, which he said “can be unreliable, particularly over the long run, and should be budgeted with caution.”
In all, the casino at the former Medinah Temple has generated $13.1 million in taxes for the city. However, the casino has yet to generate more than $1.5 million per month in taxes for the city, less than half of what the city projected in its 2024 budget, according to the report.
“As part of a broader financial plan, the City Council and mayoral administration must establish a sustainable revenue plan that is balanced with cuts in order to keep revenue and spending aligned in future years — both for required obligations and discretionary programs — along with identifying areas where cuts can be made,” Ferguson wrote.
At the top of list of ways to generate new revenue included in the Civic Federation report is to increase the fee charged by the city to collect residents’ garbage “to more closely align with the full cost of waste removal to potentially generate tens of millions in revenue and free up Corporate Fund resources for other operational purposes.”
That fee has not been increased since it was imposed in 2016.
The city should also consider restructuring the Chicago Fire Department to reflect the fact that 70% of all calls for service are for emergency medical assistance and less than 30% are related to fire suppression, according to the report.
That attempt would no doubt trigger fierce opposition from Chicago Firefighters Union Local 2, which represents the bulk of the department’s employees. Local 2’s contract with the city expired more than three years ago.
The City Council could also raise taxes on alcohol, ride-hailing services, plastic bags provided at grocery and drug stores, gasoline, restaurant meals, concerts, hotels and city stickers, according to the report.
The city should raise property taxes only as a “last resort,” according to the Civic Federation.
Vowing to find structural solutions to the city’s budget crisis, Johnson did not immediately rule out a property tax hike, as he did when he unveiled the projected $538 million budget shortfall the city confronted in 2024.
Johnson campaigned on a promise not to raise Chicagoans’ property taxes, the city’s largest source of revenue and the most effective way for city officials to raise revenue and ensure expenses do not outstrip costs.
But the city would require state approval to hike other taxes, including the real estate transfer tax, and to expand the sales tax to services and not just goods.
City officials must be prepared to make difficult decisions, Ferguson said.
“The city has reached a critical inflection point it can no longer postpone,” Ferguson said.
Contact Heather Cherone: @HeatherCherone | (773) 569-1863 | [email protected]
