Worst-case scenario: Chicago budget gap could reach $1.9 billion by 2026

Chicago’s budget shortfall could skyrocket to $1.9 billion by 2026 if the economy takes a nosedive — and even under the rosiest scenario, the gap between revenues and expenses would be $789 million by then.

Mayor Brandon Johnson’s three-year budget forecast is a far cry from the rosy picture painted by his predecessor, Lori Lightfoot, on her way out the door.

As reported Tuesday by the Sun-Times, the $85 million 2024 budget shortfall that Lightfoot projected in mid-April has ballooned to $538 million.

As the newspaper also reported, contributing factors include:

• $200 million tied to Chicago’s burgeoning migrant crisis.

• $90 million triggered by Johnson’s decision to get rid of Lightfoot’s automatic escalator that would have locked in annual property tax increases at the rate of inflation.

• $45 million in pension costs that result from Johnson’s decision not to off-load to Chicago Public Schools the annual contribution for non-teaching employees who draw their retirement checks from the Municipal Employees Pension Fund.

• $152 million in federal stimulus funds that cannot be used for “revenue replacement” because Chicago has “already made up the revenue” through a recovering economy.

• $251 million shortfall tied to personnel costs, including previously negotiated raises for police officers and firefighters as well as new five-year contracts that call for 7,000 city tradespeople to continue to receive the prevailing wages paid to their counterparts in private industry.

Both the revised forecast and the press release accompanying it note that “Federal Reserve increases to benchmark interest rates to combat inflation” have impacted the local economy and “negatively impacted revenues.”

“The projected budget gap paints a realistic picture of our city’s financial condition, which will require careful consideration and strategic action,” the press release quoted the mayor as saying.

“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 supporting “my priorities in the areas of public safety, the environment, youth and mental health.”

The press release doesn’t mention Johnson’s plan to ask the City Council to repeal the automatic escalator. It simply emphasizes Johnson’s focus on “minimizing the impact on vital public services and ensuring that the burden of closing the budget gap is borne as fairly as possible.”

The new mayor’s “multi-faceted approach” to closing the gap calls for “expenditure review, revenue enhancement measures and potential reallocation of resources,” the press release stated.

As recently as last week, Johnson refused to rule out budget cuts or tax increases to bankroll the seemingly endless parade of asylum seekers and the “winterized base camps” he has proposed to remove more than 2,000 migrants now sleeping on the floors of Chicago police stations, as well as at O’Hare and Midway airports. Each tent city capable of housing up to 1,000 migrants would cost the city $5 million-a-month.

The mayor would only say “sacrifices” would be required of Chicago taxpayers.

“Chicago is a resilient city with a rich history of facing challenges head-on. We will emerge from this period stronger and more united, continuing our journey toward investing in people and a better, stronger, safer Chicago,” the mayor was quoted as saying Wednesday.

Zoning Committee chair Carlos Ramirez-Rosa (35th), Johnson’s floor leader, said he’s thrilled the mayor is “keeping his campaign promise and holding the line on property taxes.”

“Chicagoans have really struggled to keep up with rising property taxes over the past several years and the property tax increases under former mayors Rahm Emanuel and Lori Lightfoot did not help working-class Chicagoans,” Ramirez-Rosa added.

“I’m pleased that this mayor is focused on raising revenue equitably and making sure that those with the most means are paying more. ... I hope that we can explore options in Springfield around taxing services that wealthier Chicagoans are more likely to use. But the administration will likely look toward [tax increment financing] surplus to close that gap as we look toward longer-term solutions.”

The decision to absorb $45 million in CPS pension costs is no surprise, the floor leader said.

“Our schools are in dire need of funding. We’ve seen the impact of budget cuts on CPS. This mayor has made it clear that...our children and our public schools [are] a priority for him. He’s a former teacher. He knows the challenges that our schools face. Any help that the city...can provide to our schools is welcome,” Ramirez-Rosa said.

Budget Committee Chair Jason Ervin (28th) was asked whether the Council that Lightfoot muscled into approving annual property tax increases would repeal the automatic escalator.

“I don’t know. I honestly don’t know. There’s value both ways. We haven’t had that conversation as a Council. It seems like, based on the projection that the mayor has put out, that it’s not something that he’s looking to [continue]. But at the end of this conversation, we’ve got to pass a balanced budget. How we get there, we don’t know yet,” Ervin said.

“No one wants to raise taxes at a time when we’re dealing with inflation and other [hardships]. I just had a meeting last night with residents of my community who are seeing double-digit increases in their tax bills. These are some challenging times for individuals on the revenue side. We have a lot of vacancies. We may have to re-imagine how we do some things.”

Ervin said he would start the delicate balancing act by surveying his members — first on their spending priorities, then on suggested budget economies and revenue ideas.

Looming over those deliberations will be the pace of new arrivals, which is expected to increase through next summer, when Chicago plays host to the Democratic National Convention, he said.

“There’s always an end. We just don’t know when. … It’s a fiscal challenge. It’s an emotional challenge. It’s something that we, as a city, haven’t experienced before. If this becomes the norm, we’ve got to figure out a way to solve for it. And right now, we don’t have all of the partners that we believe need to be at the table financially. And unfortunately, we’re having to deal with this because this is something at our doorstep,” Ervin said.

“In time, with conversations with both the state and federal government, we’ll get to a point where we can manage it where it’s not being so heavy a burden financially on the citizens of Chicago.”

Wall Street rating agencies had reacted favorably to annual property tax increases as well as Lightfoot’s decision to pre-pay $242 million in future pension debt to avoid saddling Chicago taxpayers with compounded interest.

They rewarded the city with a series of bond rating increases and cheered her decision to assign what she claimed was a $554 million surplus at the end of 2022 and $142 million more this year to a “Pension Advance Fund” that would help to pay for advanced pension payments” through 2026 “above the statutory requirement to stabilize funded ratios of the four pension funds.”

”This one-time money will help build a bridge toward the structural revenues expected from” a Chicago casino. Under Lightfoot’s mid-April forecast, that casino is expected to generate $245.8 million by 2028.

On her final workday in office, Lightfoot signed 10 executive orders. The most significant of those orders established the pension advance fund, using $641.5 million in surplus funds.

Johnson projects a modest 2023 surplus of $61.7 million. He has other priorities for those surplus funds, having promised to make $1 billion worth of “investments in people” through an array of social programs that form the cornerstone of his anti-violence strategy.

Shortly after taking office, Johnson signed an executive order outlining the new budget process. The next-to-last line stated: “This order shall supersede any inconsistent provision in any previous executive order.”

Johnson’s budget forecast nevertheless projects “$2.7 billion in pension contributions across all funds” in 2024. Of that, $306.6 million are advance payments.

Budget Director Annette Guzman could not be reached for comment.