Chicago is staring down a $982.4 million shortfall next year, Mayor Brandon Johnson’s administration projected Wednesday in a grim preview of the upcoming budget season.
During a briefing with reporters, the mayor’s budget office presented the nearly $1 billion figure for 2025 along with a new projection of a $223 million budget gap at the end of the current year. Filling those holes will require cutting costs or adding revenue, a reality that will come as no surprise for those in city government but nonetheless presents a challenging hurdle for Johnson in passing his second annual spending plan.
“The size of the budget gap is significant,” the mayor told reporters Wednesday. “It’s going to require decisions that will speak to our overall collective desire to build an economy that works for working people. There are sacrifices that will be made.”
Johnson did not elaborate on what those sacrifices could entail for next year’s budget — including whether raising property taxes was on the table — beyond nodding to the need for “progressive revenue.” The clearest indication he gave on where he will search for additional funding was by amping up his recent pressure on Chicago Public Schools to assume the costs of a pension payment for some employees.
Budget Director Annette Guzman said the city is considering various ways to plug the $223 million hole for 2024, “including looking at slowing down hiring, an outright hiring freeze, as well as reducing other discretionary spending that our departments have within their budgets through the end of this year.”
The mayor is expected to recommend a budget to the City Council in October. He will then have until the end of the year to convince at least 26 of 50 aldermen to support the plan or make changes to get the majority he needs.
In the meantime, some council members had their own thoughts.
Ald. Michael Rodriguez, 22nd, proposed automating the ticketing of trucks driving in no-truck zones. “That’s one creative way. We need to think of 10 creative ways,” he said ahead of aldermanic budget briefings.
“This is not without precedent. We’ve had these large deficits in the past, and it takes grit and hard work to make sure that we’re doing right by our city’s workforce,” said Rodriguez, the mayor’s Workforce Development Committee chair.
Budget gaps explained
Administration officials declined to provide dollar-by-dollar specifics for the $982 million 2025 deficit, but cited declining state revenues, the expiration of a one-time budget surplus and rising pension and personnel costs.
Guzman stressed to reporters overspending is not to blame for the shortfalls. On the revenue side, the city’s share of a personal property replacement tax paid by corporations is projected to lag at the end of this year by about $169 million because the state allowed a net operating loss cap to expire, she said.
The other factor Johnson’s team blamed for the 2024 hole was the $175 million pension payment due for nonteacher CPS employees who are members of the Municipal Employees’ Annuity and Benefit Fund. In its recently passed $9.9 billion budget, CPS bucked the Johnson administration by not including funds to pay back the city.
As part of CPS’ disentanglement from the city, the schools had taken on more of those payments beginning in 2019, and Johnson’s administration said it fully expects the district to pick that back up.
“If you look at the full amount of the MEABF payment that we are expecting CPS to uphold, that’s essentially equivalent to what the deficit is for the end of this year,” Johnson said.
Meanwhile, Guzman touted that spending was down $200 million this year because of grant reimbursements, savings from project delays and slower hiring.
One unfunded expenditure contributing to the $982.4 million figure for 2025 is the $150 million Johnson’s administration is budgeting for migrant spending. Johnson set aside the same for 2024, but that estimate fell short by midyear and required an additional $70 million allocation from the state, though recent months have shown that the pace of new buses from Texas has slowed significantly.
Without major structural changes, the administration anticipates significant budget gaps through the next three years. The baseline outlook projects a $1.2 billion deficit in 2026 and $1.3 billion in 2027.
Johnson plans to stay true to his pledge to contribute extra pension payments to help each of the city’s funds tread water, per Wednesday’s budget briefing. For next year, that advance pension payment will be $272 million. The total pension payment for 2025 is $2.85 billion, according to the budget forecast.
“In the past, the city had a habit of refunding its debt and pushing it out to later maturities,” Chief Financial Officer Jill Jaworski said. “The old scoop and toss, that’s something that was phased out in 2019, and we have continued to make sure that that practice does not occur so we’re actively paying down our long term debt.”
A long list of ideas
Last November, Johnson proposed a $16.8 billion 2024 budget that passed with relative ease, even as critics sounded the alarm on one-time fixes for plugging in the projected $538 million deficit at the time.
The challenge for the City Council and Johnson now is to try to balance the 2025 budget without hiking property taxes, a red line Johnson drew during his mayoral campaign. Doing so could raise much more money than other revenue ideas but would also subject elected officials to the ire of Chicagoans weary of living under high levies and other rising costs. This year’s property tax levy was $1.77 billion, up from $1.47 billion in 2019 and $860 million a decade ago, according to the forecast.
Other efforts by Johnson to boost revenue failed in his first year in office.
The mayor campaigned on a bold agenda of taxing the rich, but his to-do list that included bringing back a corporate head tax, hiking the hotel levy and raising the real estate transfer tax has stalled. The third pitch, known as the Bring Chicago Home campaign, was rejected in a March tax referendum that signaled voter reluctance to entrust elected officials with more public money.
This year’s massive but not unexpected $982 million gap has already been in aldermen’s crosshairs.
The mayor last October tasked a new Revenue Subcommittee with shoring up the city’s checkbook and has punted questions on new taxation ideas to that entity. The group’s leader, Ald. William Hall, 6th, shared a list of 16 revenue-raising proposals with the Tribune in June. Many of those are long shots, however, and it’s far from certain all 16 would raise enough money to balance the 2025 budget.
The ideas include legalizing and taxing video gambling, adding new Riverwalk billboard advertisements and reinstating the 1% grocery tax cut this year by state legislators.
The group has met only once, in June, and did not discuss specific revenue plans.
The final result will not be a stand-alone policy that solves the budget gap in one fell swoop, predicted Ald. Raymond Lopez, 15th.
“It will be a part of a smorgasbord of taxation,” Lopez said.
With little public indication on how the long-anticipated budget gap might be filled, some aldermen questioned whether the mayor would be able to balance the budget while upholding his no property tax hike pledge.
Ald. David Moore, 17th, criticized Johnson for breaking from former Mayor Lori Lightfoot’s policy of annually raising property taxes with inflation. Johnson, like mayors before him, is “kicking the can down the road” if he does not increase property tax rates, Moore said.
“Unfortunately, property taxes are our strongest base for raising real revenue,” Moore said. “You have to do those in increments. You just can’t do it in one hit.”
Rising costs
Johnson closed last year’s gap without new taxes or fees, but did rely on several one-time solutions, including announcing a record $50 million tax increment financing surplus, using roughly $49.5 million in unassigned money from the prior year, and counting on $90 million in upfront savings from debt refinancing.
But the city’s costs have only grown.
Wages and benefits for city workers continue to climb, for one. Johnson reached a new contract with the city’s rank-and-file police union at the end of 2023, a deal that includes a 5% wage hike in 2025. A long-awaited contract with firefighters is likely to add to that tab. Because the Chicago Fire Fighters Union Local 2 contract expired in June 2021, members are likely in for retroactive pay in addition to pay increases.
Administration officials declined to say Wednesday how much they expected the new fire contract to cost, nor would they disclose the additional cost of the police contract in 2025. Personnel costs across the board are expected to grow by roughly $304 million next year, to $3.66 billion, according to the forecast.
The city’s pension liabilities have also gone up, in part thanks to a General Assembly change benefiting police pensioners that was backed by Johnson. The legislation granting cost-of-living adjustments to Tier 1 retirees has increased the police pension fund’s liability by just over $1 billion, according to the fund’s latest actuarial report.
Another expected fix — to ensure pensioners hired after 2011 have benefits that keep up with Social Security — is expected to add to the overall tab.
Administration officials did not include any of those expected costs in their assumptions, either. Jaworski conceded those tweaks — known as safe harbor protections — would be “expensive” over the next 30 years, but would still be “manageable,” estimating they would cost an additional $100 million in the first year.
Still, Johnson said Wednesday the size of the deficit next year would not endanger his plans to re-create the city with a progressive vision.
The Roseland Mental Health Clinic will reopen as promised, mental health services will expand, and the $100 million allocated this year for antiviolence programming as well as the $250 million in homelessness prevention will remain, Johnson said.
“We are working to provide as soft of a landing as possible,” the mayor said.