Estimated city shortfall hits combined $2 billion for this year and next
Mayor Lori Lightfoot calls her 2021 spending plan a “pandemic” budget that can be balanced only with replacement revenues from Washington, concessions from city unions and new revenues.
Mayor Lori Lightfoot on Monday blamed rising coronavirus case levels in Chicago and two rounds of looting for a dramatic increase in the city’s budget shortfall — to a combined $2 billion for this year and next.
The “seismic disruption” of Chicago’s economy is so great, Lightfoot called the 2021 spending plan a “pandemic” budget that can be balanced only with replacement revenues from Washington, concessions from city unions and new revenues that just might include a dreaded property tax increase.
More likely is an increase — to 9%, up from 7.5% — in the personal property lease tax on computer leases and cloud services.
Revenue from that tax has grown about 14% per year, a rate almost certain to increase as people continue to work from home. All other leases are taxed at a rate of 9%.
For weeks after the shutdown, Lightfoot insisted Chicago’s diverse economy was well-positioned to weather the storm of increased costs and declining revenues tied to the pandemic.
On April 7, the mayor changed her tune, acknowledging a massive shortfall that might require raising taxes.
Two months later, she declared the stay-at-home shutdown of the Chicago economy had blown a $700 million hole in her precariously balanced 2020 budget — and she refused to rule out a property tax increase.
Then came Monday’s comprehensive financial analysis, with its higher shortfall estimates: $800 million for 2020 and $1.2 billion in 2021.
“Our rising case levels have hampered our city’s economic recovery. … Restaurants, bars, hotels, entertainment venues of all sizes — from small independent clubs to large concerts and tours, conventions and tourism, hotels — are still hurting because COVID-19 is still here and on the rise,” the mayor said Monday.
“Also affecting the recovery was looting and damage to our businesses that occurred three months ago and again more recently. The damage done was not just about shattered windows and lost inventory. The criminals who broke into stores, helping themselves to someone else’s property, shattered hopes and dreams and confidence in Chicago as a place that can sustain lives and livelihoods. Fear begets fear.”
To close the gaping hole in her 2020 budget, Lightfoot said she plans to: leverage funding from the first round of federal stimulus funds; achieve another $100 million in savings from debt refinancing and unspecified borrowing; and order another round of unspecified cuts.
Next year’s “pandemic budget” will depend on assistance from the federal government in the form of what she hopes will be a second round of stimulus funds to replace lost revenue.
“This calamitous financial crisis is bipartisan in its impact, and we need a bipartisan solution. We cannot let the policy-makers in Washington, D.C., fiddle while our country burns,” Lightfoot said, vowing to offer “contingencies” if the pre-election stalemate continues.
“We will also need our fair share of revenue from Springfield, starting with fully funding the Local Government Distributive Fund. ... We can work together to fully fund LGDF and avoid sending us unfunded mandates. And ... we must ... find real solutions to the pension crisis and make sure all of the funds are sustainable for years to come.”
Lightfoot said $783 million of the $1.2 billion estimated shortfall for next year is due to the coronavirus. The rest is rising pension payments and what remains of the city’s structural deficit.
On the expense side, Lightfoot warned that eliminating vacancies alone won’t cut it.
The magnitude of the financial crisis requires “reimagining” the city’s workforce and “making needed changes in places that are not being fully utilized during the remainder of this crisis and in our post-COVID-19 world,” she said. The mayor said she has already initiated talks with, as she put it, “our partners in organized labor.”
Civic Federation President Laurence Msall took it a step further. Without replacement revenue from Washington, Msall said it is nearly impossible to imagine “how the city would close such an enormous deficit without significant layoffs and possibly the elimination of entire programs.”
Last year, Lightfoot’s three-year financial analysis forecast a “worst-case” shortfall of $1.74 billion in 2022 if the economy took a nosedive.
In this year’s analysis, the worst-case shortfall rises to $1.9 billion in 2022 and $1.93 billion in 2023. And even if the economy comes roaring back, presumably after a widely distributed coronavirus vaccine, the 2023 shortfall would still be $1.2 billion.
Lightfoot managed to avert a massive post-election property tax increase that had become standard fare for Chicago mayors by balancing her $11.6 billion budget with one-time revenues.
It may not be possible this time around. Not even if, as expected, she tops last year’s record tax-increment-financing surplus of $300 million.
“Property tax increase and layoffs and furloughs — those are at the end of my list of tools and options. But they have to be on the table given the size of the budget deficit that we’re facing for next year, which is historic,” she said.
Under questioning, Lightfoot said she understands people and businesses are leaving Chicago for a variety of reasons, including security concerns and economic uncertainty.
Asking those who remain to pay new or higher taxes will be difficult, she said.
“I understand that. I have a hard time saying it. This is not an environment any of us want to be in. But we have to play the cards that we are dealt,” she said.
“Our economy is hurting. ... There’s a reason why there have been comparisons to Depression-like conditions. Because it is so deep.”
Lightfoot acknowledged tax increases could exacerbate recent population losses.
“If we were any different than anyplace else in the country, I’d have even greater concern. But there’s no place in the country that isn’t suffering exactly the same kind of hard choices that we are. The grass is, unfortunately, not greener someplace else,” she said.
For months, Lightfoot has sounded the alarm about “impossible choices” Chicago faces to fill its budget hole.
A short-term deal with the Chicago firefighters union includes $95 million in back pay dating back over three years, when the old firefighters contract expired. That will pale by comparison to the back pay owed to Chicago police officers who have yet to reach an agreement with the city. Their contract also expired on June 30, 2017.
Monday’s financial analysis ominously includes “some placeholder” revenues to bankroll a new police contract, but not enough to cover all of it, top mayoral aides said.
The Chicago Sun-Times has also reported the city spent more than $47.1 million on police overtime in June as murders and shootings skyrocketed and demonstrations after the death of George Floyd devolved into looting and mayhem.
The June figure covers the last two weeks of May and the first two weeks of June. That means overtime in the July report, covering the last two weeks of June and the July Fourth weekend, could be even worse.
Lightfoot canceled days off and ordered Chicago police officers back on 12-hour days after a second round of looting in downtown, River North, Lincoln Park and the West Side.
On Monday, Lightfoot once again acknowledged the clarion call to defund the police fueled by the death of Floyd in Minneapolis that gained further steam after Jacob Blake was shot in the back by police in Kenosha, Wisconsin.
But, she warned: “A lot of the diversity in the department really lies within the younger officers. So if we were literally talking about defunding the police and cutting police resources, what we would end up doing is cutting out officers and cutting out the diversity that has been achieved over the last five to 10 years.”
During a follow-up conference call with City Hall reporters, Chief Financial Officer Jennie Huang Bennett and Budget Director Susie Park ruled out a bankruptcy filing for Chicago.
They did, however, open the door to issuing pension obligation bonds, a $10 billion idea championed by former Mayor Rahm Emanuel — but only if those bonds are “paired with reform measures.”
“Without that, it would be very difficult for us to make the case that, ultimately, it’s a long-term, sustainable solution for the city. We are taking a hard look at it, though,” Bennett said.
The mayor’s budget team shed no additional light on the size of any property tax increase. But they shelved Lightfoot’s long-stalled plan for a graduated real estate transfer tax on high-end home sales, saying it is “not the right time to pursue it.”