The city of Chicago is facing an expected $733 million budget shortfall for next year, but federal coronavirus relief money will help.
The gap announced Wednesday morning is mostly driven by growing debt and pension payments and a tentative new police contract.
“We still have hard work to do in order to close this gap, but this figure is yet another great indication that our city is fiscally bouncing back from this crisis,” Mayor Lori Lightfoot said in a speech at the Chicago Cultural Center.
The city is projecting to collect more tax revenue than expected this year, a sign that the local economy is recovering to pre-pandemic levels.
The deficit calculation sets the stage for a months-long process that plays out mostly inside City Hall, with the mayor putting forward a budget and aldermen signing off after weeks of debate – usually with some small amendments.
Lightfoot’s 2021 budget passed 29 to 21 last year. Her administration managed to close a $1.2 billion shortfall with a $94 million property tax increase, parking meter rate increases and debt restructuring.
The 2022 budget is certain to be an easier lift for Lightfoot’s administration due to federal stimulus money.
Budget officials said Wednesday they plan to split the federal stimulus dollars roughly in half, using some to close out 2021 in the black, and the rest for 2022 and beyond. According to the forecast, $782.2 million of the nearly $1.89 billion allocated to Chicago in the spring under the American Rescue Plan will offset higher-than-expected 2021 costs.
That leaves about $1.1 billion in federal stimulus money available to cover expenses in 2022 and beyond. Lightfoot said “today is not the day” to make a plan for how to spend that money. That will come when she releases her budget proposal in mid-September.
“I think in the city we’ve done too good of a job of not talking about these dollars,” said Ald. Daniel La Spata, 1st Ward, during an interview with WBEZ earlier this week. He’s been leading a push from the Progressive Caucus to get the federal stimulus money spent more quickly. It was approved by Congress and the President almost six months ago.
La Spata said he thinks the mayor’s team waited to allocate money from the American Rescue Plan so they could play a “fiscal shell game” and ultimately, spend it shoring up the city’s debts.
“We were given those dollars explicitly to make Chicago healthy and stable, to help people’s lives, to help businesses recover from this pandemic,” La Spata said. “It should not be used for debt service. It shouldn’t be used for pensions. It shouldn’t be used for tax cuts. We may want to use it for those things. But that’s not why we were given those dollars.”
The U.S. Treasury Department’s guidance directs local governments to spend the money on COVID-19 response and economic recovery efforts.
“I believe, based on my conversations with folks at the Treasury [Department] and elsewhere, that we have a lot of flexibility to address our revenue loss needs,” Lightfoot said Wednesday. “We expect to be audited. And we expect to come up with a clean bill of health.
Villegas, the mayor’s former floor leader and chair of the Latino Caucus, told WBEZ last week he’s personally prepared to support spending about half of the stimulus money on shoring up the city’s finances. But he wants to see the city invest in new programs, too, including guaranteed basic income. He put forward a proposal in April to use $30 million of the federal stimulus money for a one-year pilot, but that legislation has not yet gotten a hearing or vote.
“It’s called the American Rescue Plan,” said Ald. Gilbert Villegas, 36th Ward. “We have to make sure that we’re helping communities and those folks that have been devastated by this pandemic.”
“I think it’s going to be a tough sell to send $1.6 to $1.7 [billion dollars] to Wall Street when Main Street is hurting,” Villegas said. “I think that’s going to be the debate. That’s going to be the fight.”
Another key point of contention will be how the city pays for the tentative new contract with the Fraternal Order of Police. That eight-year deal includes $377.6 million in retroactive wage increases for rank-and-file officers, according to the budget forecast. But the city only budgeted $103.3 million for the contract last year. The forecast does not lay out the year-to-year cost of the contract, but budget officials estimated about $165 million would be needed in 2022.
In announcing the 2022 deficit projection, Lightfoot also said her administration plans to spend about $40 million from the first round of stimulus money allocated late in 2020 under the federal CARES Act. There will be a $5 million investment in youth services, $9 million for small business assistance, $9 million for student re-engagement and $14 million in child care assistance, Lightfoot said.
Becky Vevea covers city of Chicago government and politics for WBEZ. Follow her @beckyvevea.