Chicago Mayor Lori Lightfoot unveiled her 2021 “pandemic” budget Wednesday morning in a speech that reflected on the tumultuous year in Chicago amidst a pandemic, civil unrest and racial tensions over policing.
The proposed $12.8 billion dollar budget has some bitter pills for taxpayers and city workers, including a property tax increase, 350 layoffs and mandatory furlough days for non-union city employees.
Lightfoot said this year was unlike any other in recent city history. The closest comparison, she said, was the period in the 1880s as the city was rebuilding from the Great Chicago Fire and civil unrest filled the streets.
“The lessons I take from that history are many,” Lifghtfoot said. “Importantly, as Chicagoans, throughout our history we have been tested and we have repeatedly risen to meet and exceed every challenge.”
The coronavirus pandemic has had a crippling impact on city revenues, as stay-at-home orders and restrictions on businesses crippled the local and state economies. For a city that prides itself as an international tourism destination, the industry suffered some of the biggest blows. Hotel tax collections were down 77.5%, the amusement tax on live shows and events was cut in half, as was the tax on ground transportation, such as cab rides. The sales tax was down 35%.
To close those gaps, Lightfoot turned to a combination of cuts and revenue increases.
Lightfoot couched the property tax increase as a necessary evil to counter those lost revenues. Characterizing it as “modest,” the mayor estimates that the average Chicago home valued at $250,000 would see a $56 annual increase.
“Some had predicted that this budget would be predicated on hundreds of millions of dollars in new property taxes,” the mayor said. “Not so.”
But Lightfoot is also proposing to raise property taxes annually by the rate of inflation, which means homeowners should expect increases to continue beyond 2021. One of the mayor’s top allies in City Council, Ald. Scott Waguespack, 32nd Ward, said it’s not ideal, but could be worse.
“Nobody likes property tax increases, but I would prefer it that way, instead of getting hit hard every other year,” Waguespack said. “It gives people predictability so that a taxpayer knows what they’re going to get over the next four or five years.”
Worker furloughs and question of federal money
The Chicagoland Chamber of Commerce issued a statement urging the mayor to rethink raising property taxes and the City Council to wait until Congress acts, or doesn’t act, before approving the increase.
“The proposed budget calls for $185 million in property tax and revenue increases that undoubtedly will place further strain on already struggling families and businesses, particularly small businesses,” said Jack Lavin, president & CEO, Chicagoland Chamber of Commerce. “Employers and families cannot afford new taxes that will slow down business growth, which ultimately stunts hiring and impacts residents and consumers throughout Chicago.”
Pairing that added revenue with “efficiencies,” the mayor said she would lead by example, joining non-union city workers in taking 5 furlough days. She also called for a complete review of all outstanding city contracts, some of which have been on the books since the 1990s.
“These are literally hundreds of millions of dollars in contracts, locked up in what has effectively become hundreds of de facto sole source contracts in perpetuity,” she said.
At the same time, Lightfoot continued to urge Congress to pass another COVID-19 economic stimulus package to bolster state and city finances across the country.
“This economic downturn has had a bipartisan impact, and there must be a bipartisan solution,” Lightfoot said. “So Congress: Do your job. Don’t leave us cities and towns all across this country high and dry. Do your job that we sent you there to do.”
Lightfoot said none of the layoffs she’s proposing would take effect until March 1, in order to give a newly sworn-in Congressional class – and perhaps a new president – more time to negotiate a bailout package.
If approved by aldermen, the budget would grow by $1.2 billion next year – the exact amount of the projected deficit Lightfoot’s administration announced in late August. It’s also the exact amount the city is budgeting to receive in grants.
More taxes, cuts to close historic gap
Setting aside the large increase due to grant funding, the city’s budget is mostly flat. The mayor is proposing less than $19 million in new investments, including $5.25 million for violence prevention and $2 million for affordable housing, according to documents released ‘from the mayor’s office Wednesday morning.
Lightfoot’s 2021 budget proposes to cut 1,921 city workers from the budget, a third of which are in the police department. This will save more than $91 million and city officials say many of those positions are already vacant. The mayor is also planning to force workers to take unpaid days off, but did not provide specifics.
The mayor will still need to negotiate with labor groups to achieve savings from the city’s workforce. Bob Reiter, president of the Chicago Federation of Labor said unions are “actively working on identifying cost savings and efficiencies we believe would at least equal the budgetary impact of workforce cuts, obviating the need for furloughs, layoffs, or vacancy reductions.”
Well aware of the growing public demands for defunding the police, Lighfoot countered that such action would only reverse gains made in hiring a more diverse department.
If the city reduced staffing levels for rank-and-file officers, veteran officers would be given preference and the younger, more diverse class of cops would be cut, the mayor warned.
“I am also fully aware of the complicit role that police departments dating back to our earliest times have played in brutally enforcing racist, Jim Crow laws, and depriving Black and brown people from achieving our full rights as citizens,” Lightfoot said. “But I do not believe that having fidelity to this essential work of bias-free policing requires dismantling our police department.”
Even with the reductions, Lightfoot is proposing three tax increases to shore up local revenues. The mayor is proposing to hike property taxes to generate $94 million; raise the gas tax from a nickel-per-gallon to $.08-per-gallon; and boost the tax on cloud computing to 9% from its current level of 7.25%.
Lightfoot hopes to bring in $45 million from some better-than-expected revenue receipts and the sale of city-owned land to generate $45 million in revenue. She will also dip into the city’s rainy day fund for $30 million, an amount some aldermen have said should be larger.
“I think we need to tap the reserves a little more, but if you tap the reserves, that’s going to affect our credit rating,” said Ald. Anthony Beale, 9th Ward.
Beale noted there’s a difference between reserves and the rainy day fund and also said he is concerned the city is again planning to refinance debt and push those costs out into the future.
“We’re looking at mortgaging our kids’ future,” Beale said. “That’s not making a tough decision. That’s taking the easy road.”
Lightfoot is falling back on some old budget tricks her predecessors often used to balance the budget. She is proposing to refinance city debt to generate a one-time $949 million windfall, half of which will go toward 2020 spending and half will go toward 2021.
Waguespack said the borrowing is not a “scoop-and-toss” like it was in the past. But Laurence Msall of the nonpartisan budget watchdog Civic Federation said he needs to see the details of Lightfoot’s refinancing plan.
“The question is: Is it savings as a result of lower interest rates? Or are we pushing the debt out further, and overtime, going to pay much more for it?” Msall said.
The mayor is also planning to declare a $304 million TIF surplus – essentially, taking unused money out of special taxing districts in the city – of which the city will get about $76 million. Chicago Public Schools will get half of the surplus, but will now also be asked to pick up the cost of crossing guards – a cost the city used to pay.
The city also has several fixed expenses that are expected to continue to climb in 2021. Pension obligations will cost $134 million more than they did in 2020 and debt service will also increase nearly $172 million over 2020 levels, according to data from the city’s budget forecast.
Next up, the aldermen
The city budget grew by $1 billion between 2019 and 2020. A WBEZ review of city budgets dating back to 1982 found that was the highest year-over-year increase on record, even when accounting for inflation. That analysis did not include grants that the city gets each year.
This year’s budget relies heavily on anticipated grants from both the state and federal government. When those are included, the 2021 budget appears to increase by $1.2 billion. But when those anticipated grants are removed, Lightfoot’s 2021 spending plan actually decreases by $74 million.
The big ‘if’ now is whether or not the City Council will approve of Lightfoot’s 2021 budget proposal. Last year, 11 aldermen voted against her budget. Since then, the mayor’s relationship to the city’s 50 aldermen has been somewhat contentious. Ultimately, she needs 26 to support her second spending plan.
“I think we’re going to see a lot of heated discussion, but I think in a good way,” Waguespack said. “We have to be good fiscal stewards at this time with all taxpayer dollars. We can’t hit any industry or taxpayer in particular. And we’ve got to be cognizant of the moment that we’re in.”
Legally, aldermen need to pass a budget by the end of the year. In the past, few changes have been made between the mayor’s proposed budget and the final version that passes. But this year, that could be different.