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View of City Hall and the County Building on May, 2019.

View of City Hall and the County Building on May, 2019.

Manuel Martinez

City’s budget forecast includes $42.7 million increase in property taxes

Chicago faces a modest $127.9 million budget shortfall — down from $733 million last year and $1.2 billion during the height of the pandemic — allowing Mayor Lori Lightfoot to reduce her automatic property tax increase to $42.7 million.

The automatic escalator that mayoral challenger Paul Vallas and others have vowed to repeal allows Lightfoot to raise property taxes by 5% or the inflation rate, whichever is less.

But with inflation now soaring to levels not seen in 40 years — 8.5% in July, down from 9.1% in June — the mayor had vowed to “put some guardrails” up to shield beleaguered Chicago homeowners and businesses and prevent the city from seeking the full amount.

On Wednesday, City Hall revealed those “guardrails” would cut the automatic property tax increase in half.

“We will not seek a CPI of 8.5%. We will not seek a CPI of 5%. Instead, we will provide taxpayers with a much-needed break and lower the CPI to 2.5%, which is the five-year CPI average,” Lightfoot said during a lengthy campaign-style address at the Chicago Cultural Center.

“I believe — we believe — that this is the fair thing to do.”

Since the city’s overall property tax levy is $1.6 billion, that would amount to a still significant $42.7 million, earmarked exclusively to pension payments. That’s in addition to the $40 million up-front payment the mayor demanded from Bally’s before embracing the company’s $1.7 billion plan to build a permanent casino in River West and a temporary casino at Medinah Temple in River North.

Lightfoot argued that the 2.5 percent increase would cost the owner of a home valued at $250,000 just $34 more each year.

“To put that in terms that I can understand, that’s about the price of an Al’s Italian Beef—hot, dipped, with extra cheese—for a family of four,” the mayor said.

She added, “A $34 increase?...I think people can live with that.”

The mayor acknowledged under questioning that she expects pushback from the same City Council members who opposed the automatic escalator the first time around. But, she argued that the annual trigger makes more sense than freezing property taxes for years, only to clobber taxpayers all at once.

Chicago’s $1.6 billion property tax levy nearly doubled between 2012 and 2021.

The revised 2.5% increase is based on the five-year average of the consumer price index — that’s lower than 7% increase from December to December that would have been allowed under the ordinance, according to the city.

“While increasing property taxes is a last resort, the city also needs to be able to keep up with rising pension costs to ensure long-term financial stability and to honor the service of the police, fire, streets and sanitation and other city workers that serve to keep our city safe, clean and running efficiently,” Chief Financial Officer Jennie Huang Bennett was quoted as saying in a press release.

Lightfoot said closing the budget gap to $128 million would not have been possible, if not for “our dedication to remaining good financial stewards and not shying away from making tough choices. ... As a result, the city has reached major financial, economic and social milestones during our COVID-19 challenge and our journey toward structural balance.”

Chicago mayors have a history of inflating budget shortfalls after an election — and raising taxes, fines and fees immediately after facing voters. They then have historically low-balled deficit projections in the run-up to mayoral and aldermanic elections, allowing incumbents to face the voters without raising taxes.

The automatic escalator Lightfoot persuaded a reluctant Chicago City Council to approve as part of her 2021 budget changes that equation somewhat, but not a lot.

The $127.9 million budget gap is likely to be filled without any other significant increase in taxes, fines and fees.

Four months ago, Lightfoot declared Chicago was poised for the “best economic recovery of any big city in the nation, bar none,” in spite of “what the naysayers claim.”

The city’s annual Certified Annual Financial Report for 2021 gave the mayor some hard numbers to back up the bold claim that laid the groundwork for her re-election bid.

As the Sun-Times reported last week, it shows Chicago closed the books on 2021 with a “total fund balance” of $679.1 million—$318.1 million of it “unassigned”—thanks to “recovering revenues impacted by” the pandemic and spending transferred to federal grant funds received for COVID response.

The rebound was on full display at O’Hare Airport, where operating revenues rose by $239.5 million or 26.5 percent.

That was thanks to increased terminal use charges and landing fees of ($176.1 million or 26.5 percent); a $49.2 million increase in concession revenues and a $14.2 million hike in hotel revenues “as the airport started to recover from the pandemic.”

Total flights originating at O’Hare and connecting through the airport — the industry calls those “enplanements” — rose from 15.35 million in 2020 to 26.9 million last year.

In 2019 — the last year before the pandemic — that total stood at 42.2 million. Total passengers were just over 54 million, up from 30.8 million the year before, but a far cry from the 84.6 million in 2019.

At Midway, total operating revenues rose by $33.1 million, “primarily due to a significant increase in passenger volume, terminal rental revenues and concessions.” Total aircraft operations stood at 185,956. That’s up from 150,198 in 2020, but still way down from the 232,084 in 2019.

Lightfoot is rightfully proud of having “climbed the ramp” to actuarial funding of Chicago’s four city employee pension funds.

But the audit by the accounting firm of Deloitte & Touche LLP shows how desperately Chicago still needs a long-term solution to its pension crisis.

That’s even after signing off on the Bally’s casino plan, touted as the $200 million-a-year salvation for police and fire pensions

The city’s total pension liability stands at $33.6 billion. That’s $700 million higher than it was at the close of 2019, when the pension liability rose by 5.6 percent.

With the mayoral election now just over six months away, Lightfoot has made virtually no long-term progress on pensions.

Early on, Lightfoot floated a plan for a state takeover of Chicago’s four city employee pension funds, only to be shot down cold by the governor.

“To be clear, the state is at just above junk status in its credit rating. So, there are not liabilities that can be adopted by the state that would not drive us into junk status. So, that is not something that we can do,” Pritzker said then with Lightfoot standing awkwardly at his side during a 2019 news conference highlighting the passage of his $45 billion capital bill.

Last year, Pritzker made Chicago’s pension crisis infinitely worse.

He ignored the mayor’s plea to veto a bill boosting pensions for thousands of Chicago firefighters, arguing it would saddle beleaguered Chicago taxpayers with perpetual property tax increases and cripple the pension fund closest to insolvency.

The mayor has also alternately touted a sales tax on services and an increased real estate transfer tax on high-end purchases as a solution to Chicago’s pension crisis, but both plans have gained no traction in Springfield.

Lightfoot’s $16.7 billion 2022 budget sailed through the Council 35 to 15, thanks to an avalanche of federal stimulus funds paving the way for an unprecedented 30% increase in city spending.

Lightfoot moved up the budget process by a month to coincide with the unveiling of her plan to spend federal relief funds.

She ended up using 68% of it or $782.2 million for revenue replacement.

That freed up the city’s corporate fund to repay a $450 million line of credit used to eliminate a pandemic-induced shortfall and cancel $500 million in scoop-and-toss borrowing that saddles another generation of Chicagoans with debt and would have been necessary without the federal largesse.

Still, she managed to earmark $1.2 billion for new investments by pooling $563 million in federal money with the $660 million that represents the 2022 installment of her capital plan.

The year before, Lightfoot had balanced her budget by, in part, eliminating 614 Chicago Police Department vacancies and shrinking CPD by attrition.

This year, she increased CPD spending by $189 million — to just under $1.9 billion. Budget Director Susie Park has said the “full driver” of that increase is the new police contract, with its 20% pay raise over eight years.

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