Mayor Lori Lightfoot on Monday blamed rising coronavirus case levels in Chicago and two rounds of looting for a dramatic increase in the city’s budget shortfall — from $700 million to nearly $800 million this year — and a whopping $1.2 billion expected in 2021.
The “seismic disruption” of Chicago’s economy is so great, Lightfoot called the 2021 spending plan a “pandemic” budget that can be balanced only with replacement revenues from Washington, concessions from city unions and new revenues that are likely to include the personal property lease tax on computer leases.
The mayor noted “historical growth” in that tax is likely to continue as people keep working from home.
For weeks after the shutdown, Lightfoot insisted Chicago was well-positioned to weather the storm of increased costs and declining revenues tied to the coronavirus pandemic.
She repeatedly said “no one revenue stream is more than 13%” and that all of the “economically sensitive” revenues together total just 25%.
On April 7, the mayor changed her tune, acknowledging a massive shortfall that might require raising taxes was possible.
Two months later, she declared the stay-at-home shutdown of the Chicago economy triggered by the coronavirus had blown a $700 million hole in her precariously-balanced, 2020 budget — and she refused to rule out a property tax increase.
Then came the comprehensive financial analysis, with its higher shortfall estimates for this year and next.
Why the increase?
“Our rising case levels have hampered our city’s economic recovery. … Restaurants, bars hotels, entertainment venues of all sizes — from small independent clubs to large concerts and tours, conventions and tourism, hotels and all of the other related businesses — are still hurting because COVID-19 is still here and on the rise. There is a direct cause and effect,” the mayor said Monday, according to prepared remarks released before her news conference.
“Also affecting the recovery was looting and damage to our businesses that occurred three months ago and again more recently. The damage done was not just about shattered windows and lost inventory. The criminals who broke into stores helping themselves to someone else’s property shattered hopes and dreams and confidence in Chicago as a place that can sustain lives and livelihoods. Fear begets fear.”
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To close the gaping hole in her 2020 budget, Lightfoot said she plans to: leverage funding from the first round of federal stimulus funds; authorize yet another round of debt refinancing and borrowing; and authorize unspecified cuts.
Next year’s “pandemic budget” will depend on the level of funding received from the federal government in what she hopes will be a second round of stimulus funds.
“I know this is campaign season, but this is not a red-vs.-blue issue. This calamitous financial crisis is bipartisan in is impact and we need a bipartisan solution. We cannot let the policy makers in Washington D.C. fiddle while our country burns,” Lightfoot said, her voice rising in anger.
“We will also need our fair share of revenue from Springfield, starting with fully-funding the Local Government Distributive Fund. Yes, I am painfully aware of the state’s own fiscal challenges. Even so, tax dollars from Chicagoans fund Springfield just like tax dollars from other municipalities across the state...We can work together to fully fund LGDF and avoid sending us unfunded mandates. And...we must....find real solutions to the pension crisis and make sure all of the funds are sustainable for years to come.”
Lightfoot said about 65% of the $1.2 billion estimated shortfall for next year is due to the coronavirus.
On the expense side, Lightfoot warned that eliminating vacancies alone won’t cut it.
The magnitude of the financial crisis requires “reimagining” the city’s workforce and “making needed changes in places that are not being fully utilized during the remainder of this crisis and in our post-COVID-19 world,” she said.
“I’ll do everything I can to prevent layoffs, but the reality is stark. Our options in this fiscal crisis are limited. All of which will require some hard and, yes, painful choices,” the mayor said.
“We have started conversations with our partners in organized labor, which will be important as we move forward. … As we navigate this crisis together, you have my word: Anything we do now will involve true engagement and collaboration. No proposal is set in stone. And we welcome all ideas.”
Last year, Lightfoot’s three-year financial analysis forecast a “worst case” shortfall of $1.74 billion in 2022 if the economy takes a nose-dive. Even in the best-case scenario, with a rosy economy, the office forecast a $799 million shortfall.
In this year’s analysis, the worst case shortfall rises to $1.9 billion in 2022 and $1.93 billion in 2023. And even if the economy comes roaring back, presumably after a widely-distributed coronavirus vaccine, the 2023 shortfall would still be $1.2 billion.
Moody’s Investors subsequently ranked Chicago and Detroit as the U.S. cities least prepared to weather another recession due to “extraordinarily high” fixed costs and crushing pension obligations.
Lightfoot managed to avert a massive post-election property tax increase that had become standard fare for Chicago mayors by balancing her $11.6 billion budget with one-time revenues.
They included: a $300 million tax increment financing surplus, the largest in Chicago history; a $1.5 billion refinancing, with all $210 million in savings claimed up-front; and a $93 million clawback from the Chicago Public Schools for pension and security costs the city used to pay for.
A subsequent refinancing triggered $310 million savings, $100 million more than planned. The mayor also counted on $163 million from raising ambulance fees paid by private insurers and getting federal approval for reimbursements administered by the state for ambulance transports for low-income patients on Medicaid.
Even after enduring an avalanche of tax increases, Chicago taxpayers can look forward to more of the same.
They’re on the hook to keep all four city employee pension funds on the road to 90% funding. By 2023, the city’s contribution to all four funds will nearly double, to $2.1 billion.
For months, Lightfoot has been sounding the alarm about the “impossible choices” Chicago faces to fill its budget hole, and since then, the hole is only gotten bigger. A short-term deal with the Chicago firefighters union includes $95 million in back pay dating back over three years, when the old firefighters contract expired. That will pale by comparison to the back pay owed to Chicago Police officers who have yet to reach an agreement with the city. Their contract also expired on June 30, 2017.
The Chicago Sun-Times has also reported that the city spent more than $47.1 million on police overtime in June as murders and shootings skyrocketed and demonstrations after the death of George Floyd devolved into looting and mayhem.
The June figure covers the last two weeks of May and the first two weeks of June. That means overtime in the July report, covering the last two weeks of June and the July Fourth weekend, could be even worse.
Lightfoot canceled days off and ordered Chicago Police officers also back on 12-hour days after a second round of looting earlier this month destroyed giant swaths of downtown, River North, Lincoln Park and the West Side.
