Chicago Mayor Lori Lightfoot is expected to unveil her first budget Wednesday that will close a projected $838 million gap with higher taxes on ride-shares, restaurant bills and one-time fixes.
But it’s still unclear whether the first-year mayor also will hit up Chicagoans for yet another big property tax increase.
As if the massive budget gap weren’t enough, Lightfoot is expected to be greeted by throngs of striking Chicago teachers outside City Hall Wednesday morning as she prepares to deliver her budget speech to the City Council. The strike is now in its fifth day, with no end in sight.
All of that could put Lightfoot in a tough spot as she negotiates with aldermen to give her budget final approval, which traditionally happens before Thanksgiving. The mayor has said repeatedly that she won’t rule out a property tax hike – a point she reiterated Tuesday morning.
“I can’t take that off the table,” she told reporters. “But I've heard loud and clear from people across the city that the last thing I want to see on top of all the other things that they suffered over these last few years is a property tax increase.”
Lightfoot has said that without some relief from Springfield, the city’s options are “severely limited.” But it’s far from certain whether state lawmakers will be willing to help Chicago get out of yet another financial mess.
The mayor has said she plans to lobby them for changes to a huge gambling expansion bill that finally allowed for a long-sought Chicago casino. An independent study released in August found it would be “very onerous” for any casino operator to turn a profit here, based on the effective 72% tax rate that’s baked into state law.
Lightfoot’s hoping she can get the state to accept less tax revenue in order to make the casino feasible, but it’s unclear whether the General Assembly would agree.
However she finds it, the rookie mayor will need to come up with money in order to meet the city’s ever-rising pension payments for city workers. For the 2020 budget, the city is on the hook for nearly $1.7 billion in state-mandated pension payments to its four retirement funds. That’s a more than $371 million increase over this year.
Refinancing, restaurant tax and ride-share fees
Lightfoot’s top finance adviser told reporters Monday that about 40 percent of the $838 million hole will be filled using one-time fixes. That includes another plan to refinance much of City Hall’s outstanding debt.
Lightfoot’s Chief Financial Officer, Jennie Huang Bennett, said the move will generate $200 million in upfront savings. She underscored that the move is not the same as the controversial “scoop-and-toss” borrowing practices of the past, which just pushed debt into the future. Lightfoot’s proposed refinancing won’t change the schedule for paying back bondholders, Bennett said.
In the weeks leading up to the speech, Lightfoot has also been announcing the consolidation of some city departments and incremental sources of new revenue to close the gap.
One of Lightfoot’s revenue-generating measures could make dining out in the city more expensive. The mayor is proposing a hike on the sales tax for all food and beverages purchased at restaurants and retail establishments. That would amount to an additional $.25 on a $100 bill. The move is forecast to rake in $20 million for the city.
The mayor also laid out plans last week for the city to hike fees yet again on ride-hailing services, such as Lyft and Uber. The mayor’s office expects that to generate $40 million and tackle congestion downtown.
Lightfoot’s plan would reduce the city’s tax on shared ride-hailing trips, from $.60 per trip down to $.53. But solo riders would see the tax nearly double, to $1.13 per trip. And ride-share passengers would be hit with a new surcharge of up to $1.75 per trip to downtown destinations.
Cost-cutting and belt-tightening
In a belt-tightening measure, Lightfoot’s also proposing that the department that oversees the city’s 311 service call system, the data portal and other technologies be combined with the department that maintains city vehicles. Lightfoot said combining the Department of Innovation and Technology with the Department of Fleet and Facilities Management would save the city about $1 million.
Lightfoot also wants to combine the city’s public safety departments into one entity. Public safety is one of the city’s largest expenses, after accounting for pension and debt payments.
By consolidating the Chicago Police Department, the Fire Department and the Office of Emergency Management into one mega-division, the city will save money on administrative costs in the long run by taking beat cops off desk duty and putting them back on the street.
On the spending side, Lightfoot has said she plans to dramatically increase the money City Hall sets aside for legal payouts and settlements to nearly $153 million next year. Last year’s budget under Mayor Rahm Emanuel allocated just $47 million for legal payouts, even though the city ended up spending $142 million – most of which was for police misconduct cases.
Legal settlements have ballooned in recent years mainly due to some high-profile police involved cases that put the city on the hook for millions of dollars. The city’s Law Department often favors settling cases, as that can be cheaper than going to trial and risking bigger court-mandated payouts.
Lightfoot first revealed next year’s whopping $838 million budget gap in a rare prime-time speech in August. She said then that she’s considering raising taxes on high-priced home sales in order to close the deficit. The city also can tax soon-to-be-legal recreational marijuana sales at up to 3%, which Lightfoot has raised as a possibility.
To plug past budget holes, mayors have relied on one-shot revenue streams or borrowed money. For Richard M. Daley, that meant leasing the city’s parking meters and the Skyway to cover general services. For Rahm Emanuel, that meant borrowing billions of dollars to cover old debt and city operations.
In preparation of what could be one of her most difficult budgets as mayor, Lightfoot held public hearings across the city to collect ideas for how the city could find new sources of revenue or service cuts.
On the campaign trail, Lightfoot said she’d rather trim existing costs than burden taxpayers. To handle the city’s growing pension tab, her predecessor hiked up taxes on homeowners at the start of his second term.
In addition to a four-year, phased-in property tax hike to cover police and fire pensions, the City Council hiked taxes on water and sewer bills, instituted a monthly garbage fee, and raised the 911 surcharge on phone bills to $5. All of those changes freed up money in the city’s general fund to cover state-required increases to the city’s four pension funds.
Claudia Morell and Becky Vevea cover city politics for WBEZ.