Chicago is facing its largest budget deficit in history for fiscal year 2020, which starts January 1. Due to growing costs for pensions, personnel, and debt, the city is $838 million dollars short.
Analysts believe a property tax increase will likely be needed to fill what Mayor Lori Lightfoot called a “staggering large hole” in the budget.
In her State of the City address, Mayor Lori Lightfoot said it will take “tough choices” to come up with a workable budget that doesn’t drive businesses out of Chicago.
Lightfoot said she could deal with the deficit by enacting a historically large property tax hike, by slashing pensions, or by massive borrowing. “I fundamentally rejected these proposals,” Lightfoot said in a statement that appears to leave the door open to similar moves on a smaller scale.
The new mayor will unveil her first budget in October. She mentioned replacing high-cost debt to save $100 million, as well as a hiring freeze, and a crackdown on overtime. Lightfoot said she was committed to a graduated real estate transfer tax that would raise more money from higher-priced properties and having a robust cannabis industry after Illinois legalized recreational marijuana. She also made it clear that Chicago will need help from the state.
One of the big bond rating agencies is putting pressure on the Mayor to be more aggressive in reducing the city’s pension liability to maintain its already lowered credit rating status. This may require a greater reliance on a property tax increase.
In a statement, S&P Global Ratings said, “outside of a massive property tax increase, Chicago has limited options to raise significant, predictable revenues through a single tax or fee increase without state legislation.”
S&P’s statement added that Chicago’s commitment to solving its pension problem is "at the core" of the city’s current BBB+ rating, which is only two levels above a junk bond rating.
In September, the mayor held a series of town hall meetings to present options on how the city can begin to solve long-time issues with the budget. The meetings involved discussions about how the city’s revenue is spent on services like infrastructure, development planning, public art, homelessness support services, and police.