Chicago Mayor Outlines Budget to Close $838 Million Shortfall
October 23 2019 - 02:18PM
Dow Jones News
By Shayndi Raice and Heather Gillers
CHICAGO -- Mayor Lori Lightfoot proposed a budget Wednesday to
close an $838 million budget gap through a series of revenue and
tax increases as Chicago confronts the highest pension burden of
any major U.S. city.
The mayor, facing a teacher strike, a budget crunch and soaring
pension costs just five months into her first term, outlined an
$11.7 billion budget for 2020 that would rely on a mixture of $538
million in savings and another $352 million in new revenue while
avoiding a property tax increase.
Ms. Lightfoot, sworn in in May as the city's first black woman
and first openly gay mayor, said in a Wednesday speech that the
budget "reflects the reality that sacrifices are needed in the work
that lies ahead."
New revenue sources include an increased fee on ride-sharing
trips to the downtown area, higher taxes on restaurant meals and
increases to parking meter rates. She also aims to raise revenue
through the sale of cannabis, which becomes legal in the state in
January. The city aims to save $200 million through debt
refinancing.
The budget now requires approval by the City Council. It is
implemented on January 1.
Some of Ms. Lightfoot's proposals will require help from state
lawmakers, who face their own budget issues. The administration is
depending on cooperation from Springfield to revamp the city's tax
on real estate sales, a move Ms. Lightfoot's budget relies on for
$50 million in revenues. And Ms. Lightfoot said she is looking to
the legislature for help landing a Chicago casino and developing "a
statewide pension reform package."
Without that cooperation, Ms. Lightfoot said she will need to
make "painful choices" to find other revenue sources. "We all know
what those revenue sources are," she said, an apparent reference to
a property tax increase she has said she is not ruling out.
Ms. Lightfoot's partial reliance on one-time revenue sources,
such as the debt refinancing, as well as legislative action from
the state, leaves the city open to having to make adjustments if
plans don't go as expected, said Arlene Bohner of Fitch Ratings.
The city's budget won't be structurally sound, Ms. Bohner said,
until it tackles its pension liabilities.
The budget includes about $51 million in new spending for
affordable housing, public safety and mental health programs, among
other items.
Ms. Lightfoot said the city was also trying to cut its reliance
on fines and fees that overly burden low-income residents.
Ms. Lightfoot foreshadowed the budget rollout in August,
addressing what she called a budget crisis and setting up a series
of public meetings to discuss solutions in a "State of the City"
speech. At the time, she said a third of the $838 million deficit
was due to higher pension payments, another third from increased
labor cost. A nearly $100 million jump in debt servicing, and $90
million from lawsuit settlements contributed to the balance.
Her Wednesday address came as teachers, who have been on strike
since Thursday, protested outside City Hall. They are seeking a pay
increase of 16% over three years, smaller class sizes and added
staff in each building. The mayor has proposed a five-year increase
of 15%, saying the city can't afford some of the requests from
teachers.
Chicago's school district, which is run by a mayor-appointed
board, sets its own budget. It levies property taxes that are in
addition to the taxes levied by the city on the same properties,
and are subject to a state cap.
Ms. Lightfoot inherited a number of budget problems that have
been building for years, including one of the nation's worst
pension shortfalls. Her predecessor, Rahm Emanuel, raised property
taxes and helped attract new investment and construction to the
city's downtown.
But decades of paltry contributions to the city's four pension
funds have left Chicago $30 billion short of what it needs,
according to city estimates. Chicago, which has the largest pension
liability of any major city, according to Moody's, is scheduled to
pay more into it's pension fund every year: next year the city is
scheduled to pay in $1.7 billion.
Population loss has aggravated the city's financial woes, and
Ms. Lightfoot spoke of a long-term goal of restoring the city's
population, which has been shrinking for four years, "back to three
million."
Write to Shayndi Raice at shayndi.raice@wsj.com and Heather
Gillers at heather.gillers@wsj.com
(END) Dow Jones Newswires
October 23, 2019 14:03 ET (18:03 GMT)
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