Property taxes will rise by $20 million to match the consumer price index, but Mayor Lori Lightfoot said Wednesday she’s hoping to hold it to that despite a $733 million budget shortfall for 2022.
“It’s my hope that we will not need to raise taxes — and by taxes, I assume you mean property taxes. It’s our hope that we will not need to use that tool,” Lightfoot told reporters at the Cultural Center.
The mayor pointed did not rule out other tax increases. A budget summary chart tied to the city’s three-year financial analysis talks about “exploring new revenue sources, financial reforms” and department efficiencies to close the $733 million gap.
During a conference call that followed the mayor’s speech, Budget Director Susie Park acknowledged that Lightfoot’s declaration does not mean property taxes will be frozen.
“It is not our intention to increase the property tax for the upcoming budget. However, the CPI that was approved in the last budget remains. … I think it’s around $20 million-ish,” Park said.
The 2022 shortfall is down 40% from the $1.2 billion gap that preceded what Lightfoot calls her “pandemic” budget.
It would have been bigger and more daunting if not for the $1.9 billion of federal stimulus funds on its way to Chicago.
It will allow the Lightfoot administration to play a financial shell game of sorts.
Gone is the mayor’s plan to use more than half of the money to retire $465 million in scoop-and- toss borrowing and canceling plans to borrow $500 million more. That ran contrary to initial Treasury Department guidelines.
Instead, the mayor plans to use $782 million in stimulus money to replace revenues lost to the pandemic in 2020 and 2021. That will free up corporate fund revenues to retire the scoop-and-toss borrowing.
“Those funds were intended to fund investments from all the impact that we have from COVID-19. But, in addition to that, it is meant to also fund government services. That is what we’re doing. We’re using [American Rescue Plan] dollars to fund eligible government services to keep government going from the pandemic and moving forward,” Park said.
During the fourth quarter of this year, the city plans to refinance $1 billion in debt at reduced interest rates and use the $250 million in savings to pay for retroactive pay raises for Chicago Police officers.
Chief Financial Officer Jennie Huang Bennett stressed that the $1 billion refinancing is “not scoop-and-toss.” Debt services will be lower every year, even though the city will reclaim the savings upfront.
The tentative contract gives rank-and-file police officers a 20% pay raise over eight years, 10.5% of it retroactive.
The total cost of the retroactive paychecks is $375 million. The mayor’s 2021 budget set aside only $100 million for police back pay. That means Lightfoot needs to find at least $25 million more — even after the refinancing — and come up with “around $165 million” going forward.
Lightfoot blamed the “still sizable” shortfall on the “lasting and continuing impacts” of the coronavirus pandemic.
Her three-year financial analysis forecast a “base, positive and negative” case shortfall of $733 million in 2021. The shortfall rises to anywhere from $391 million to $1.2 billion by 2024, depending on the economy.
“COVID has thrown us a wrench a number of times in terms of the actual pace of the virus, the recovery, potential additional waves of cases. We are planning for all of those various scenarios and how we might be able to address the potential change in revenue forecasting,” Bennett said.
Lightfoot said the surge in coronavirus cases tied to the Delta variant underscores the need for the city to be “smart” about how it spends the once-in-a-lifetime avalanche of the federal stimulus funds.
“It’s not gone. It’s not going to be gone entirely for some time. … This race sometimes feels like a race against time with these mutations that are coming,” Lightfoot said, renewing her push for Chicagoans to get vaccinated.
“We’ve gotta be diligent. And being diligent is also being smart in making sure that we’ve got the resources in order to respond. If we spent every penny that has been allocated for COVID and we had, God forbid, another catastrophic surge, then people would say, `What happened to the mayor. Why did she do that?’ “
Already, the city has used $800 million in federal stimulus money to support hard-hit small businesses and provide a safety net of assistance for housing, food, homeless services and mental health and cover the salaries of police officers, firefighters and other first responders.
On Wednesday, City Hall disclosed plans to use $37 million in remaining first-round stimulus funds to “create a bridge” toward the investments Lightfoot intends to make with the next round of federal help.
The new investments include $14 million for youth prevention programming; $9 million for neighborhood recovery initiatives; and $14 million for child care assistance.
Last year, Lightfoot spent months claiming Chicago was well-positioned to weather the economic storm caused by the coronavirus only to finally reveal that the stay-at-home shutdown had blown a two-year, $2 billion hole in the city’s budget.
After weeks of contentious negotiations, the City Council ultimately approved her $12.8 billion budget by the narrowest margin Chicago has seen in decades.
The mayor’s plan to raise property taxes by $94 million, followed by annual increases tied to the consumer price index, passed with only two votes to spare. The roll call was 28 to 22.
The vote on the budget itself was 29 to 21, a roll call made famous during the 1980s power struggle known as “Council Wars” that saw 29 mostly white aldermen thwart then-Mayor Harold Washington’s every move.
Although she has condemned political horse-trading, Lightfoot was forced to do a lot of wheeling and dealing to line up the 26 votes she needed to approve the budget.
She canceled 350 layoffs in favor of borrowing against future revenues from the sale of recreational and medical marijuana and ordered five furlough days, but only for those non-union employees with six-figure salaries.
She sweetened the pot for violence prevention by $10 million and set aside $2 million to test a pair of alternate response pilot programs for emergency calls related to mental health.
And she increased the value of the treasured aldermanic menu program from $1.32 million for each of the 50 wards to $1.8 million.
For the second straight year, Lightfoot’s budget was also precariously balanced with one-time revenues.
It called for the city to refinance $1.7 billion in general obligation and sales tax securitization bonds and claim $949 million of the savings in the first two years.
That would have extended the debt for eight years and returned Chicago to the days of “scoop-and-toss” borrowing that former Mayor Rahm Emanuel ended, although not nearly fast enough to satisfy Wall Street rating agencies.
A $304 million tax increment financing surplus created a $76 million windfall for the city. The 2021 budget also included $59 million by “sweeping aging accounts”; a $30 million raid on the city’s $900 million in reserves; and $54 million in savings by off-loading the cost of pensions and crossing guards from the city to Chicago Public Schools.
This year, Lightfoot moved up her budget unveiling to mid-September, one month earlier than normal.
Her plan to use $1.9 billion in federal stimulus funds faces stiff resistance from Chicago aldermen, who want to spend the stimulus money on an array of housing, mental health, jobs and outreach programs that attack the root causes of the city’s unrelenting gang violence.
Chicago’s $33 billion pension crisis continues to weigh heavily on city finances, in part because all four pension funds are now on the actuarial road to 90 percent funding.
Next year, the state mandated payment rises to $2.25 billion to four city employee pension funds. That’s up from $1.8 billion this year.
The firefighters’ pension fund is in the worst shape, with assets to cover just 19% of its liabilities.