Chicago Mayor Brandon Johnson is set to reveal his 2024 budget on Wednesday, which will be a delicate balancing act between his campaign promises and the city’s financial realities.
(Bloomberg) — Chicago Mayor Brandon Johnson is set to reveal his 2024 budget on Wednesday, which will be a delicate balancing act between his campaign promises and the city’s financial realities.
Rising crime, a half-a-billion dollar deficit, a $35 billion pension hole and soaring costs to care for the more than 18,000 migrants who have arrived in the Windy City since last August are all confronting the first-time mayor as he unveils his inaugural spending plan.
Johnson was elected in April on a progressive platform pledging to increase taxes on corporations, enhance public safety, and invest in poorer neighborhoods while arguing that the city’s wealthiest should pay more to address the longstanding challenges. Businesses have since warned that they may consider leaving if they face new taxes, and the cost of caring for a growing influx of migrants has surged to $345 million, many of whom are sleeping at the airport and in police stations.
“How much is he willing to go out on the revenue side to make investments he feels are essential? The challenge is paying for it,” said Ralph Martire, executive director of the Center for Tax and Budget Accountability in Chicago. “It doesn’t seem there are enough realistic new revenue options on the table.”
Johnson faces critical choices with the third-largest US city at a key juncture. Record federal pandemic aid is running out just as the economy and revenue growth slow. He’s pledged to address long-standing socioeconomic and racial tensions amid a mounting migrant crisis as the corporate community and employers nervously eye what that may cost them.
His first budget will set the tone for the financial outlook of the city, which has long suffered deficits. Less than a year ago, Chicago shed its one junk rating from Moody’s Investors Service for the first time since 2015 largely by ramping up payments into its underfunded retirement funds. The potential for more upgrades is tied to the city’s ability to balance its budget and pay down the pension burden, said Ashlee Gabrysch, director for Fitch Ratings, which ranks the city’s debt BBB, two steps above junk.
But Johnson’s lofty goals will be costly — he promised to ramp up investments to $1 billion a year in the city — and he’s vowed not to raise property taxes, which are a key funding source for retiree benefits and one of the city’s largest revenue levers. His predecessor Lori Lightfoot had implemented an annual property tax jump tied to inflation but Johnson has opposed that hike.
“How is he going to deliver on those campaign promises?” said Dora Lee, director of research for Belle Haven Investments, which holds Chicago debt. “We definitely don’t want to hear Chicago going back to its bag of tricks of budget gimmicks.”
Chicago has a history of deferring pension payments and pushing out debt in a tactic often called “scoop-and-toss” — practices frowned upon by investors and budget watchdogs.
The city projects costs for its main operating account to rise about 10% to nearly $6 billion next year. Roughly $200 million of that is attributed to higher migrant costs, while pension and personnel expenses are also rising. The city’s pension bill is forecast to hit $2.7 billion in 2024. That contrasts with an expected drop in revenue — leading to a budget gap of $538 million, according to Johnson’s forecast last month.
“The growth in projected budget gap for fiscal year 2024 is somewhat concerning,” said Molly Shellhorn, senior research analyst for municipals at Nuveen, the largest holder of Chicago debt. “We’ll be interested to see how the new administration plans to close the gap, especially given that some of the revenue ideas put forth in the mayor’s campaign would be difficult to implement before the beginning of the fiscal year.”
Like past mayors, Johnson also may draw surplus funds from tax-increment financing districts, created to spur economic development by using dollars from rising property valuations for infrastructure and other improvements, said Justin Marlowe, director of the Center for Municipal Finance at the University of Chicago.
Johnson, who took office in May, campaigned on boosting revenue as much as $800 million with taxes on big businesses, the rich and commuters. The realities, however, of what the state legislature will support or the city’s corporate community will stand for limit his options on sources of money.
“Let’s not do something that’s going to hurt jobs and economic development,” said Jack Lavin, chief executive officer of the Chicagoland Chamber of Commerce. He said the business community is not concerned about any one issue but the cumulative impact of various tax proposals, costs and inflation.
The Chicago City Council is considering legislation that would ask voters to approve a higher tax on real estate sales of more than $1 million. If implemented, the plan would raise more than $100 million to help reduce homelessness in the city, according to estimates.
Several of Johnson’s other proposals such as a tax on financial transactions, which the city’s storied trading firms oppose, lack support in the state legislature.
Workers and visitors coming into downtown is crucial to drive revenue higher, said Alderman Gilbert Villegas, a member of the city council budget committee. While tourism has increased, return to offices has been slower.
“The central business district is critical to the city’s success,” Villegas said. “People are still not coming back downtown to the central business district providing the economic activity we need.”
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