Lightfoot reveals ‘significantly reduced’ but still sizable $733M budget shortfall
“While we still have hard work ahead of us in order to close this gap, this figure is a great indication that our city is fiscally bouncing back from this crisis,” the mayor says in a news release.
Chicago property taxes will rise by $20 million to match the consumer price index, but Mayor Lori Lightfoot said Wednesday she hopes to hold it to that despite a$733 million budget shortfall for 2022.
“It’s my hope that we will not need to raise taxes — and by taxes, I assume you mean property taxes. It’s our hope that we will not need to use that tool,” Lightfoot told reporters at the Cultural Center.
The mayor did not rule out other tax increases. A budget summary chart tied to the city’s three-year financial analysis talks about “exploring new revenue sources, financial reforms” and department efficiencies to close the $733 million gap.
During a conference call after the mayor’s speech, Budget Director Susie Park acknowledged that Lightfoot’s declaration does not mean property taxes will be frozen.
“It is not our intention to increase the property tax for the upcoming budget. However, the CPI that was approved in the last budget remains. … I think it’s around $20 million-ish,” Park said.
The 2022 shortfall is down 40% from the $1.2 billion gap that preceded what Lightfoot calls her “pandemic” budget.
It would have been bigger and more daunting if not for the $1.9 billion of federal stimulus funds on its way to Chicago. It will allow the Lightfoot administration to play a financial shell game of sorts.
Gone is the mayor’s plan to use more than half of the money to retire $465 million in scoop-and-toss borrowing and canceling plans to borrow $500 million more. That ran contrary to initial Treasury Department guidelines.
Instead, the mayor plans to use $782 million in stimulus money to replace revenues lost to the pandemic in 2020 and 2021. That will free up corporate fund revenues to retire the scoop-and-toss borrowing.
During the fourth quarter of this year, the city plans to refinance $1 billion in debt at reduced interest rates and use the $250 million in savings to pay for retroactive pay raises for Chicago police officers.
The tentative contract gives rank-and-file police officers a 20% pay raise over eight years, 10.5% of it retroactive.
The total cost of the retroactive paychecks is $375 million. The mayor’s 2021 budget set aside only $100 million for police back pay. That means Lightfoot needs to find at least $25 million more — even after the refinancing — and come up with “around $165 million” going forward.
Civic Federation President Laurence Msall said the city’s plan to use federal stimulus funds to close the 2020 and 2021 budget gaps is “reasonable as a one-time backfill to address very significant one-time revenue losses due to the economic effects of the coronavirus pandemic.”
“Similarly, use of economic savings from a debt refinancing to pay retroactive costs on the new police contract prudently matches one-time revenues to a one-time expense. However, taking savings upfront, as the city plans to do, still creates gaps in future years’ budgets that will need to be filled,” Msall said in a statement.
Lightfoot blamed the “still sizable” shortfall on the “lasting and continuing impacts” of the coronavirus pandemic.
Her three-year financial analysis forecast a “base, positive and negative” case shortfall of $733 million in 2021. The shortfall rises to anywhere from $391 million to $1.2 billion by 2024, depending on the economy.
“COVID has thrown us a wrench a number of times in terms of the actual pace of the virus, the recovery, potential additional waves of cases. We are planning for all of those various scenarios and how we might be able to address the potential change in revenue forecasting,” Chief Financial Officer Jennie Huang Bennett said.
Lightfoot said the surge in coronavirus cases tied to the Delta variant underscores the need for the city to be “smart” about how it spends the once-in-a-lifetime avalanche of the federal stimulus funds.
“It’s not gone. It’s not going to be gone entirely for some time. … This race sometimes feels like a race against time with these mutations that are coming,” Lightfoot said, renewing her push for Chicagoans to get vaccinated.
“We’ve gotta be diligent. And being diligent is also being smart in making sure that we’ve got the resources in order to respond. If we spent every penny that has been allocated for COVID and we had, God forbid, another catastrophic surge, then people would say, `What happened to the mayor. Why did she do that?’”
The city has used $800 million in federal stimulus money to support hard-hit small businesses and provide a safety net of assistance for housing, food, homeless services and mental health and cover the salaries of police officers, firefighters and other first responders.
On Wednesday, City Hall disclosed plans to use $37 million in remaining first-round stimulus funds to “create a bridge” toward the investments Lightfoot intends to make with the next round of federal help.
The new investments include $14 million for youth prevention programming, $9 million for neighborhood recovery initiatives and $14 million for child care assistance.
Last year, Lightfoot spent months claiming Chicago was well-positioned to weather the economic storm caused by the coronavirus only to finally reveal that the stay-at-home shutdown had blown a two-year, $2 billion hole in the city’s budget.
After weeks of contentious negotiations, the City Council ultimately approved her $12.8 billion budget by the narrowest margin Chicago has seen in decades.
The mayor’s plan to raise property taxes by $94 million, followed by annual increases tied to the consumer price index, passed with only two votes to spare. The roll call was 28 to 22.
Although she has condemned political horse-trading, Lightfoot was forced to do a lot of wheeling and dealing to line up the 26 votes she needed to approve the budget. The vote on the budget was 29 to 21.
She canceled 350 layoffs in favor of borrowing against future revenues from the sale of recreational and medical marijuana and ordered five furlough days for those nonunion employees with six-figure salaries.
She sweetened the pot for violence prevention by $10 million and set aside $2 million to test a pair of alternate response pilot programs for emergency calls related to mental health.
And she increased the value of the treasured aldermanic menu program from $1.32 million for each of the 50 wards to $1.8 million.
For the second straight year, Lightfoot’s budget was also precariously balanced with one-time revenues.
It called for the city to refinance $1.7 billion in general obligation and sales tax securitization bonds and claim $949 million of the savings in the first two years.
That would have extended the debt for eight years and returned Chicago to the days of “scoop-and-toss” borrowing that former Mayor Rahm Emanuel ended, although not nearly fast enough to satisfy Wall Street rating agencies.
A $304 million tax increment financing surplus created a $76 million windfall for the city. The 2021 budget also included $59 million by “sweeping aging accounts”; a $30 million raid on the city’s $900 million in reserves, and $54 million in savings by offloading the cost of pensions and crossing guards from the city to Chicago Public Schools.
This year, Lightfoot moved up her budget unveiling to mid-September, one month earlier than normal.
Her plan to use $1.9 billion in federal stimulus funds faces stiff resistance from Chicago aldermen, who want to spend the stimulus money on an array of housing, mental health, jobs and outreach programs that attack the root causes of the city’s unrelenting gang violence.
Chicago’s $33 billion pension crisis continues to weigh heavily on city finances, in part because all four pension funds are now on the actuarial road to 90% funding.
Next year, the state-mandated payment rises to $2.25 billion to four city employee pension funds. That’s up from $1.8 billion this year.
The firefighters’ pension fund is in the worst shape, with assets to cover just 19% of its liabilities.