Chicago faces a “significantly reduced,” but still sizable, $733 million budget shortfall in 2022 because of the “lasting and continuing impacts” of the coronavirus pandemic, Mayor Lori Lightfoot disclosed Wednesday.
“While we still have hard work ahead of us in order to close this gap, this figure is a great indication that our city is fiscally bouncing back from this crisis,” Lightfoot said in a news release.
“Last year, we were faced with a $1.2 billion pandemic budget. This year, we have shifted to a recovery budget that not only reflects the challenges….but the number of resources we’ve brought to bear to address them.”
The shortfall will be eliminated by refinancing outstanding debt at reduced interest rates, using the $1.9 billion avalanche of federal stimulus funds on its way to Chicago and “as always, looking to create governmental efficiencies,” the news release states.
Already, the city has used $800 million in federal stimulus funds 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 childcare 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.
The $12.8 billion budget also included only $100 million to cover retroactive pay raises for Chicago police officers. The actual price tag for the four-year, 10.5% retroactive pay raise that Lightfoot and the Fraternal Order of Police have negotiated is $365 million.
The Lightfoot administration is counting on a massive refinancing to bankroll more than half the cost of a $600 million police contract that will give rank-and-file officers a 20% pay raise over eight years, more than half of it retroactive.
Lightfoot had planned to use more than half of the $1.9 billion of federal relief to retire $465 million in scoop-and-toss borrowing and cancel plans to borrow $500 million more.
But her plan was put in jeopardy after the Treasury Department issued initial guidelines stating the money couldn’t be spent on tax cuts, pension funds, debt services, legal settlements or judgments or be deposited in rainy day funds.
The city has sought clarification on the guidance. A 60-day window for the city to submit its stance on the matter to the Treasury Department ended July 16.
The plan also 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.
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.
