Chicago Mayor Brandon Johnson details $538 million gap in his first budget

CHICAGO — Chicago is expected to hit a budget gap of $538 million next year, Mayor Brandon Johnson announced Wednesday in a solemn acknowledgment of the city’s fiscal challenges while also pledging to keep his campaign promise to hold the line on property taxes.

The deficit — far wider than the $85 million shortfall his predecessor Lori Lightfoot said she left him with in the spring — is the result of Johnson choosing to undo her controversial choice to tie the property tax levy to inflation, as well as the financial impact of the thousands of migrants who’ve arrived in Chicago, historic inflation and rising costs tied to pensions and contractual obligations, according to a statement released Wednesday morning from the mayor’s office.

In fact, the total cost of supporting Chicago’s migrants is expected to reach $200 million next year. And the $1.9 billion in stimulus funds that the city was allotted under the American Rescue Plan Act is drying up in 2024, after years of keeping the city’s coffers filled during the COVID-19 pandemic.

The freshman mayor didn’t lay out specific plans about how he planned to close the budget hole but said in a statement that the projected gap “paints a realistic picture of our city’s financial condition, which will require careful consideration and strategic action.”

“In the coming weeks, we will be taking a much closer look at the challenges we face, and how we will address those challenges reasonably and responsibly, and not on the backs of workers and working families,” Johnson wrote.

Lightfoot generally avoided big property tax increases during her single term in office but still implemented some hikes due to rising pension costs and deficits driven by the COVID-19 pandemic. The city’s levy under Lightfoot rose from roughly $1.54 billion in 2020 to $1.73 billion in 2023, partly because of a policy she passed in 2020 tying property tax increases to the rate of inflation, capped at 5%.

Last November, just before the citywide election, Lightfoot passed a $16.4 billion election-year budget, a fiscal plan designed to be as uncontroversial as possible. Lightfoot’s 2023 budget did not raise property taxes after she decided to drop the scheduled increase for this year’s budget, a move that seemed designed to avoid a hard vote during election season.

As a candidate, Johnson was quick to come out against raising residents’ property taxes, a pact he hammered until the very end of the runoff election, even as some doubted its viability. Roughly $1.4 billion of the $1.7 billion the city collected in property taxes in 2023 was used for pension debts, and keeping the city’s tax levy at its current level will force the mayor to find new revenue or cuts to plug in that gap and to enact aspects of his progressive agenda.

“My administration is fully committed to transparency, inclusivity and effective co-governance,” Johnson said. “We will work tirelessly to ensure that our budgetary decisions reflect our commitment to the betterment of Chicago and the livelihoods of its residents, and provide support around my priorities in the areas of public safety, the environment, youth and mental health.”

For 2023, the city is expected to end with a $61.7 million surplus in its corporate fund, the city’s general operating budget. That bucket does not include self-supporting enterprise funds or special revenue sources that require separate accounting. But the $538 million gap for next year can be attributed to revenues dropping 0.5% while expenditures balloon by 9.3% from this year’s budget.

On the revenue side, local taxes are projected to bring in 2.1% more revenue, or $45.5 million. But proceeds and transfers — outside sources of funding — will fall by a whopping 34%, or $294.1 million, because Chicago will no longer be able to tap into the stimulus funds from the American Rescue Plan Act, which expires next year.

The spending side can be attributed to factors such as personnel costs being projected to grow by more than $214.4 million, to $3.4 billion, due to wage increases, rising health care costs and other cost-of-living factors. And costs for assisting the more than-13,500 migrants who have arrived in Chicago over the past year are expected to rise by $149 million more than the $51 million Lightfoot allocated for migrant costs this year.

Since August 2022, buses and planes carrying asylum-seekers have departed Texas for Chicago, some under the direction of Republican Gov. Greg Abbott, who said it was time that sanctuary cities in the north take on more obligation to care for the new arrivals. But lagging work permits from the federal government and an insufficient social safety net in Chicago has led about 2,000 of them currently sleeping on the floors of police stations and O’Hare International Airport.

The city has obligated an estimated $144 million on migrant care this year, $30 million of which is Federal Emergency Management Agency funding that still requires a final City Council vote this month. But that amount is not sustainable, the mayor’s team has said in recent budget briefings.

Johnson himself warned last week: “So the sacrifices that will be required in this moment will be necessary from all of us, every single level of government,” when asked about whether additional revenue will be needed, particularly to move the asylum-seekers out of Chicago police station lobbies.

As for pensions, Johnson will continue Lightfoot’s practice of making advance payments across the city’s four retirement funds, totaling $2.7 billion in 2024, the administration said. That’s an advance payment of $306.6 million, up from $242 million above the requirement this year.

The former mayor left Johnson with a series of parting executive orders on her last day in office, namely one that requires the city to establish a “pension advance fund” from the 2022 and 2023 budget surpluses — about $640 million — that can only be used for advance pension payments through 2026. Johnson’s administration has not said what it will do about the order, but so far he has not moved to retract it.

Johnson, a former Cook County commissioner, released one of the most extensive economic plans in this year’s mayoral race, vowing to eliminate the city’s structural deficit through a bundle of tax-the-rich levies. The plans included reinstating a $4-per-employee corporate head tax on large companies, creating a 9.2 cents-per-gallon levy on jet fuel, instituting a $1 or $2 charge on securities trades and increasing the hotel tax from 4.5% to 6%.

Those proposals have not been widely discussed by the mayor in public since he won the election, and his mentions of his 100-day goals — Treatment Not Trauma and Bring Chicago Home — come with caution that they are multiyear endeavors. Still, Johnson has not shied away from his bolder, progressive-minded rhetoric since assuming office and indicated he will seek another term in office to enact his agenda.

Treatment Not Trauma calls for a citywide, non-police response to mental health crises and for reopening the mental health clinics shut down by former Mayor Rahm Emanuel. A City Council committee took the first step this summer to explore the plan, but it’s unclear how much of it will be reflected in his next fiscal plan as Johnson last week warned of “real budgetary dynamics” that will limit how many can be reopened in the first four years.

The second proposal, Bring Chicago Home, aims to raise revenue for social services for homeless people by raising the real estate transfer tax on the sales of luxury properties. Supporters say the program is direly needed, especially as the plight of thousands of migrants is straining the city’s resources, and the mayor’s allies have indicated they will move to pose the question in a citywide referendum on the March primary ballot.

Long term, the city’s base outlook for the corporate fund projects a 2025 deficit of $986 million, and $1.2 billion in 2026. Those numbers could swell to $1.5 billion and $1.9 billion, respectively, under the worst-case scenario, and shrink to $686.3 million in 2025 and $789.8 million in 2026 under the most positive outlook.

“Chicago is a resilient city with a rich history of facing challenges head-on,” Johnson said. “We will emerge from this period stronger and more united, continuing our journey toward investing in people, and a better, stronger, safer Chicago.”

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