Chicago Mayor Brandon Johnson announced Wednesday the city is facing a $538 million budget gap, and that he doesn’t plan to increase property taxes to close it.
The gap is fueled in part by the ongoing effort to support migrants being sent to the city, as well as rising personnel costs and pension payments, the budget forecast released Wednesday reads. At least $149 million of the shortfall is driven by supporting new arrivals. But in a news release, Johnson vowed to follow through on a campaign promise to produce a budget that “holds the line on not raising the base property tax levy.”
Not raising property taxes would contribute to the overall, half-billion dollar gap by about $88 million, according to Johnson’s budget office, though a spokesperson noted Johnson’s announcement on Wednesday is a forecast, and is subject to change ahead of his budget pitch.
“The projected budget gap paints a realistic picture of our city’s financial condition, which will require careful consideration and strategic action,” Johnson said in a statement Wednesday. “In the coming weeks, we will be taking a much closer look at the challenges we face, and how we will address those challenges reasonably and responsibly, and not on the backs of workers and working families.”
The city of Chicago cannot legally operate on a budget gap — and Johnson will need to find ways to close it. He’s expected to announce how he’ll do so next month during his comprehensive budget address.
The gap is by far not the biggest in recent years. Former Mayor Lori Lightfoot faced a $1 billion shortfall when the city’s finances were battered by the COVID-19 pandemic. But it’s one that will likely require cuts, new revenue or taxes to close.
Johnson’s budget forecast Wednesday is perhaps the most definitive the mayor has been on not raising property taxes since taking office. Despite campaigning on a promise he wouldn’t raise property taxes, Johnson declined to rule out an increase when asked by WBEZ in August. In response to a question about whether a property tax was on the table, Johnson said “investing in people is on the table.” He has also told the Chicago Sun-Times the city will need to make “sacrifices” to address the ongoing migrant crisis.
At an Economic Club of Chicago speech last week, Johnson was tight-lipped on new taxes he will propose to generate new revenue, but was clear about his thoughts on the city’s rising property taxes.
“We have relied upon property taxes as the sole source of revenue generation … to balance quote-on-quote the budget. And I find that to be lazy,” Johnson said. “And I believe it’s important that everything is on the table.”
Earlier this year, while she was still mayor, Lightfoot released a relatively rosy forecast, saying Johnson should only fall short by $85 million for 2024 — a projection Johnson’s team didn’t believe.
At the time, Lightfoot underscored the outlook was reliant on the city continuing to raise property taxes at the rate of inflation. It’s a policy Lightfoot implemented, even though she opted out of requiring it last year ahead of an election season and rising inflation.
Fiscal experts have warned the city will need to ensure revenues keep pace with expenses and obligations like pension payments, especially as the city continues to recover from the pandemic and federal relief dollars run out.
While in office Lightfoot implemented a policy popular with financial experts to make advance payments on the city’s underfunded pensions, which Johnson seems to be continuing. Wednesday’s forecast anticipates $2.7 billion in pension contributions will be made next year, with nearly $307 million of that advance payments. That’s an increase from the $2.6 billion the city made in pension payments last year, with $242 million of that for advanced payments.
Pension and personnel make up the majority of the city’s anticipated expenditures, and in 2022 personnel costs, which include employee pay and benefits, made up 72.4% of the city’s corporate fund’s expenditures. Sarah Wetmore, acting president of the Civic Federation, said personnel “is one area that you would need to look at” to reduce expenditures.
Some of Johnson’s other ideas for raising revenue will require more than a few months in office to take root.
For instance, Johnson has endorsed implementing a tiered, marginal tax increase on the sale of high-end properties over $1 million to fund homelessness prevention. Under the proposal, the portion of property valued at over $1.5 million would be taxed at 3% — four times the current rate — while sales under $1 million would see a 20% decrease in the tax rate to .6%.
The tiered plan is expected to be introduced Thursday at City Council, but the proposal wouldn’t go before voters until next spring. Johnson has framed the tax increase as an avenue to create more affordable housing and boost both home ownership and Chicago’s population in order to help grow the economy.
However, Wednesday’s forecast noted that the real estate transfer tax is estimated to come in at roughly $82.1 million, an amount that’s under budget because of a slow in real estate activity.
But since taking office, Johnson has said little else of the slew of new taxes he proposed on the campaign trail — many which would require approval from Springfield and City Council — to generate tens of millions in revenue.
The forecast predicted budget shortfalls will grow in the next several years, with 2026’s estimated budget deficit at $1.9 billion at worst, and nearly $790 million at best.
Wetmore said those future projections will be reduced by actions the city takes this year to close the 2024 deficit, and said the decisions made this year need to be sustainable ones for the city’s long-term fiscal health.
“That means making expenditure reductions that will continue into future years that aren’t just one year.” Wetmore said, and, “relying on revenue sources that aren’t just one-time revenue sources, because then you have to cover that amount of shortfall the following year.”
Johnson will also have to find ways to continue to pay for the city’s growing costs of housing and supporting asylum seekers.
More than 13,500 migrants have arrived in Chicago since August of last year, and as of Monday morning, over 7,300 asylum seekers are staying in city shelters and nearly 2,000 are sleeping in police station lobbies and across airports.
Johnson’s administration has pitched setting up “base camps” where tent shelters outfitted to withstand winter conditions can house new arrivals — rather than police stations. If the sites are stood up, the city estimates over $301 million will be spent from August 2022 through December, according to a presentation given to City Council members.
Johnson’s administration, and many City Council members, have urged for more federal aid to help the city shoulder the growing costs. The amount of revenue local governments can tap to cover unexpected costs is limited, Wetmore said, and “certainly we would be in favor of the federal government, who’s really in charge of borders, providing additional funding to the city.”
Johnson’s comprehensive budget proposal is set to be unveiled next month, and he has already tempered expectations that his first city budget will be taking big swings.
“The good news about being mayor of the city of Chicago, I get multiple attempts to build a budget that speaks to our values,” Johnson said last week at the Economic Club of Chicago, later adding: “I actually believe that laying down a bunt is a smart form of baseball. But it’s also a smart form of governance.”
After Johnson releases his proposed budget, City Council members will hold weeks of hearings, with a vote on the finalized budget anticipated in mid-November. By law, the city’s budget must be passed by Dec. 31.
WBEZ’s Tessa Weinberg and Mariah Woelfel cover Chicago city government and politics.