City Hall is pictured in a file photo. (Michael Izquierdo / WTTW News)

Chicago’s top financial officials defended Mayor Brandon Johnson’s plan to hike property taxes by $300 million and use it to pay down the city’s massive pension debt to skeptical members of the Chicago City Council.

If approved as part of the city’s 2025 spending plan, the additional payment to the city’s four pension funds would represent the third time Chicago officials have paid more than required.

Chief Financial Officer Jill Jaworski told members of the City Council’s Budget and Government Operations Committee on Wednesday that the $17.3 billion spending plan “prioritizes the city’s long-term fiscal stability.”

“We will not repeat the mistakes of the past,” Jaworski said.

In all, Chicago owes $37.2 billion to its four employee pension funds representing police officers, firefighters, municipal employees and laborers, according to the 2023 Annual Comprehensive Financial Report.

The funds designed to pay pensions to Chicago’s police officers, firefighters and municipal workers each have funding levels of approximately 22%; the laborers’ fund has the highest funded level, at 39%, according to the city’s annual financial report.

Chicago’s four pension funds have a combined funded level of 26%, which is significantly worse than other large public pension funds, which have average funding levels of about 70%.

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 additional pension payment will “stop the bleeding” in those funds, Jaworski said. The payment will prevent the further growth of the city’s pension liabilities and save the city $3.9 billion by 2030, she added.

If Chicago cancels the additional pension payment, Wall Street ratings agencies could lower the city’s credit rating, making it more expensive for the city to borrow money, making Chicago’s financial hole deeper, Jaworski said.

Jaworski acknowledged that Chicago’s finances have been out of whack for decades.

Pinched by soaring pension costs and a massive amount of debt, Johnson is the latest mayor of Chicago to vow to bring the city’s expenses in line with its revenues — without significantly raising property taxes on the city’s residents.

State law must be changed to allow Chicago to generate “progressive revenue” by taxing high-earners and allowing sales taxes to be levied on the purchase of services as well as goods, Jaworski said.

During his budget address, Johnson said he would much rather “tax the rich” than raise property taxes on all Chicagoans.

But his proposal, which amounts to the largest property tax hike since 2016 and the second biggest in modern Chicago history, faced a chilly reception. The owners of a property worth $250,000 will likely pay approximately $240 more per year, if Johnson’s proposed tax hike is approved by at least 26 members of the Chicago City Council, according to a WTTW News analysis. 

“No one wants the $300 million property tax increase,” said Ald. Monique Scott (24th Ward), demanding new ideas from the mayor’s finance team, who said they had considered all options.

Ald. Matt O’Shea (19th Ward) was one of several alderpeople to urge Jaworski and Budget Director Annette Guzman to craft a list of potential cuts for the City Council to consider, and warned that negotiations over the spending plan would stretch until the deadline of Dec. 31.

“We are spending beyond our means,” Ald. Chris Taliaferro (29th Ward) said.

Ald. Mike Rodriguez (22nd Ward) called on Jaworksi and Guzman to make the case that it would cost Chicago more not to make the additional pension payment than it will to cut that check.

“This is the amount we need just to tread water,” Jaworski said.

Without the additional payment, the funds will have to sell assets to make payments to retirees, which makes the overall financial condition of the pension funds worse, Jaworski said.

Ald. Samantha Nugent (39th Ward) urged Guzman to use the city’s unspent COVID-19 relief funds to balance the city’s budget and avoid a property tax.

Nugent’s recommendation echoes a suggestion from the Civic Federation to use the remaining federal relief funds to “relieve pressures from the core operating budget deficit,” according to a report from Joseph Ferguson, the head of the nonpartisan budget watchdog group and the city’s former inspector general.

Chicago had yet to spend approximately $300 million in COVID-19 relief funds through the first half of 2024, according to a WTTW News analysis of the most recent report submitted to federal authorities.

Budget Committee Chair Ald. Jason Ervin (28th Ward) said that would not solve Chicago’s structural budget deficit.

Under rules established by the federal government, Chicago officials have until 2026 to spend all of the federal funds the city got to repair the damage caused by the pandemic. Johnson promised to use those funds to invest in communities where residents are suffering as a result of decades of disinvestment.

Ald. Matt Martin (47th Ward) said the mayor’s office did a poor job of prepping alderpeople and residents for the shock of a $300 million property tax hike.

“We need to figure out different ways these pieces fit together,” Martin said.

Contact Heather Cherone: @HeatherCherone | (773) 569-1863 | [email protected]