Chicago faces 2025 budget shortfall of nearly a billion dollars

Chicago is facing a $982.4 million budget shortfall in 2025 that has Mayor Brandon Johnson refusing to rule out the property tax increase he campaigned against.

Johnson’s hand-picked Chicago Board of Education approved a $9.9 billion budget that does not include the $175 million pension payment for non-teaching school employees. The city absorbed that payment until Johnson's predecessor off-loaded that cost to the Chicago Public Schools.

In an unprecedented rebuke, CPS CEO Pedro Martinez and the CPS board rejected the mayor’s request to take out a short-term, high-interest loan to cover the pension payment and the cost of a new teachers contract. That’s why the mayor is laying the groundwork to dump Martinez.

Unless the board does an about-face, not only will the 2025 budget gap balloon to $982.4 million, but Chicago also will end 2024 with a $223 million deficit, in part because personal property replacement taxes have fallen $169 million short of year-end projections.

That could force the mayor to tighten the city's belt a few notches and at least consider breaking his campaign promise to hold the line on property taxes.

"Difficult choices will need to be made in order to achieve a balanced budget" in 2024, "particularly if" the school pension payment is not received, the three-year financial analysis states.

"To end the year in balance, potential deficit mitigation strategies include reducing expenditures through operational efficiencies and a hiring freeze; reducing some city programs and services and delaying projects."

Johnson openly acknowledged: "There are sacrifices that will be made." Still, he's hoping for a reversal on the school pension issue.

He noted CPS has absorbed the payment for non-teaching members of the Municipal Employees Annuity and Benefit Fund “for the last four years.”

“This is essentially a weaning process that has to get them into a full standing of what other school districts do. … We’re still paying a portion of what they’re ultimately responsible for,” Johnson said in a conference call with reporters.

“The entanglements that exists within the city government and the Chicago Public Schools are quite complex and as we work to disentangle these structures that have been in place for decades now, CPS is going to be treated like every other school district across the state. … We’re just asking them to pick up the portion that they have done over the course of these last four years."

Johnson was asked repeatedly whether he would consider raising property taxes or, at the very least, reinstating the automatic escalator that locks in annual property tax increases at the rate of inflation, a mechanism added by his predecessor, Lori Lightfoot.

He would only say that “all of the options that have been discussed are still on the table” and that he remains “very much committed” to his “overall vision of investing in people and addressing the structural damage” that has been done to long-neglected South and West Side neighborhoods.

“I’ve been very forthright about the effort to generate progressive revenue,” said Johnson, who campaigned on a promise to impose $800 million in tax and fee increases on businesses and wealthy Chicagoans.

“Unfortunately, other measures that we would have liked to have passed did not,” he said, referring to his failed “Bring Chicago Home” referendum.

Chicago firefighters and paramedics have waited more than three years for a new contract. When it’s settled, that will require the city to shell out three years' worth of retroactive pay raises to say nothing of their demand for 20 more ambulances and paramedics to staff them.

Johnson and his Budget Director Annette Guzman refused to disclose how much money they’ve set aside for retroactive pay raises. Under Lightfoot, that cost was $95 million for 2022 alone.

But Guzman noted the police contract Johnson extended and sweetened “gives us some baseline understanding of what to expect in negotiations” with Local 2.

The projected budget gap assumes the city will spend just $150 million on the migrant crisis. That's how much Johnson originally budgeted this year to feed and care for migrants. But he had to add $95 million at year’s end without City Council approval and persuade reluctant alderpersons to add $70 million to that total in April.

The shortfall also assumes Johnson will follow Lightfoot’s lead and make a $272 million “advance” pension payment above what the law requires. A Johnson-backed cost-of-living adjustment for so-called "Tier One" police retirees saddled the city with $1 billion worth of additional pension costs.

“We’re excited that we’ve hit our peak” when it comes to advance pension payments, said Chief Financial Officer Jill Jaworski. “When the [permanent] casino opens, we can shift away from that.”

But, she stressed, yet another costly but "manageable" change is needed to ensure retired city employees have "safe harbor" — meaning, they at least keep pace with Social Security benefits, for which they are not eligible.

Chicago mayors usually lower the boom in their first post-election budget, giving taxpayers three years to forget. Johnson rewrote that script.

He froze property taxes, rejected the automatic property-tax escalator and used one-time revenues, including a record $434 million tax increment financing surplus, to postpone the day of reckoning.

Johnson’s $16.77 billion budget included none of the tax increases he proposed during the campaign, in part because he was counting on "Bring Chicago Home," the binding referendum which would have authorized the City Council to raise the real estate transfer tax. Instead, voters rejected that idea.

The broader revenue question was punted to a City Council sub-committee chaired by freshman Ald. William Hall (6th) that has held just one public meeting where no decisions were made.

Johnson now promises to “work with the City Council” to devise “long-term, sustainable solutions” that are sensitive to the plight of “working people.”

In the conference call with reporters, Johnson pushed back hard when asked whether the massive shortfall will force him to pull back on the “down payment” he made in his first budget on the $1 billion worth of “investments in people” he promised.

“The Roseland mental health clinic is going to reopen this fall. Mental health services will be made available at the Legler library on the West Side as well as the UIC clinic. … We’re still building affordable homes. … The $1.25 billion investment for neighborhood and economic development — that’s real money that will reach the West and South Sides,” he said.

“No one should be surprised [about] the structural damage that exists. That’s why the progressive moment prevailed. ... My vision and mission is still committed to moving those investments forward while also repairing the damages that we inherited."

The three-year financial forecast that serves as the city’s preliminary budget also paints a bleak picture for future years.

The “base outlook” projects a shortfall of $1.3 billion in 2027. The “negative outlook” includes a $1.9 billion deficit. Even the rosiest economic outlook forecasts a $702.6 shortfall by then.

Jaworski referred to the most optimistic outlook as the “Goldilocks” scenario. It assumes decreased inflation, reduced interest rates and higher growth. The “near perfect scenario” is “not a very high likelihood,” she said.