Chicago’s $12.8 Billion Budget Plan Raises Taxes, Cuts Jobs


Mayor Lori Lightfoot is proposing a $12.8 billion budget that raises property and fuel taxes, institutes layoffs and furloughs and refinances debt to close the largest budget gap in Chicago’s history.

Lightfoot is seeking to hike property levies by $94 million, budget documents show. The city also plans to pull $30 million from the rainy day fund and reduce the size of the city’s workforce through job cuts, furloughs and eliminating positions to save $106.3 million in personnel costs. These steps will help fill the record $1.2 billion shortfall in the city’s corporate fund.

“So, in 2020, we have taken some punches. Some very hard body blows,” Lightfoot said during a speech Wednesday in the City Council chamber. “We have made choices on additional revenue that aid our recovery, not hinder it.”

While cities across the country are confronting revenue declines and deficits, Chicago’s pain is more acute because its finances were strained even before the pandemic exacerbated its budget shortfall. Pension costs have weighed on the city’s credit rating for years, which partly spurred Moody’s Investors Service to downgrade the city to junk in 2015. And those bills are climbing. Chicago’s four retirement funds are short about $30 billion, and the city’s projected pension contribution climbs to about $1.8 billion for the coming year.

Headcount Cuts

“It’s good that they proposed higher taxes,” said Dora Lee, director of research for Belle Haven Investments, which holds Chicago debt as part of $11 billion in muni assets under management. “Politically, it’s one of the harder things to do especially right now, but getting through the next year is going to require a lot of politically hard choices.”

Lightfoot is proposing a reduction of over 1,800 job vacancies and layoffs of about 350 positions, which would be effective March 1 at the earliest, and five furlough days for all non-union workers. The timeline is intended to let the city see if any more federal stimulus comes through, and Lightfoot called on Congress to send additional aid. The city council will vote on the budget later this year.

“We did not shy away from making the hard, but necessary choices,” Lightfoot said. “We believe that these structural reforms will set us up well to continue along our path toward structural balance, we which are targeting for 2023.”

The mayor also proposed cutting the Chicago Police Department budget by 3.4% to $1.7 billion and eliminating more than 600 full-time equivalent positions. Lightfoot said she doesn’t support defunding the police.

Refinancing Savings

The 2021 spending plan counts on $262.6 million in improved fiscal management and $168.3 million in efficiencies.

The city also plans to issue $1.7 billion of general obligation and Sales Tax Securitization Corp. bonds to refinance outstanding debt, which is expected to generate almost $450 million of “budgetary relief” for the 2020 budget and $501 million in 2021.

The budget would also increase the business tax on cloud computing services, which was first implemented in 2015 at a rate of 5.25%. The rate was boosted to 7.25% at the beginning of 2020 and Lightfoot is recommending it be raised another 1.75% next year.

Read more: Chicago Reaps Revenue Bonanza With Cloud Computing Tax

Additionally, the budget suggests a 3-cent-per-gallon increase in the city’s vehicle fuel tax. The cloud tax and gas tax increases, taken together, would generate more than $25 million, the administration said. Lightfoot plans to dip into the tax increment financing surplus, collecting $76 million.

Virus Hit

Lightfoot attributed Chicago’s fiscal distress to the Covid-19 public health crisis, saying the pandemic had hammered the city with unprecedented revenue losses. Chicago is hemorrhaging cash across all major tax programs, she said, pointing to a 77.5% drop in hotel tax revenues; a 49.5% decline in amusement tax revenues; a 48% drop in parking tax revenues; and, a 35% decline in sales tax revenues.

Chicago’s budget presentation comes as the city is seeing an increase in coronavirus cases, adding uncertainty to the economic outlook. On Monday, Lightfoot outlined how Chicago is seeing a “second surge” with cases rising more than 50% over the past two weeks to about 500 daily, according to the city’s health department. It’s the highest daily case count since late May.

Amid the pandemic and recession, the city is also trying to provide support for those in need. The corporate fund proposes investments including $7 million to support the economic recovery, $5.25 million for violence prevention and $2 million for affordable housing. The city also has endured protests during the summer that at times led to violence and looting.

“In thinking about the challenges and complications of this extraordinary year, a year in which we have been confronted with crisis after crisis, at times seemingly without end,” Lightfoot said.

©2020 Bloomberg L.P.

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