November 13, 2019
(CHICAGO) – In a report released today, the Civic Federation announced its support for the City of Chicago’s proposed $9.9 billion FY2020 budget but still has several significant reservations. The full analysis is available here.
Entering FY2020 Mayor Lightfoot faced a historic $838.2 million Corporate Fund budget deficit driven largely by a huge increase in pension contributions to the Police and Fire funds as well as unresolved collective bargaining agreements.
To close the deficit, the FY2020 budget proposal incorporates a number of savings and efficiencies, including implementing zero based budgeting, merging departments and improved fiscal management practices. The budget additionally relies on targeted taxes and fees, including increasing taxes on ridesharing companies, parking meter rates, the Personal Property Lease Tax and the restaurant tax. The City also expects to begin seeing revenue from a cannabis excise tax in FY2020. The Civic Federation commends Mayor Lightfoot for focusing on savings and efficiencies and emphasizing targeted taxes and fees, rather than broad-based tax increases.
“The Mayor and her team have identified a number of creative avenues to fill an enormous budget gap,” said Civic Federation President Laurence Msall. “However, this plan leaves very little room for error and does rely on some aggressive assumptions, including State and federal assistance that has not yet been approved.”
The originally proposed FY2020 budget depended on two revenue sources that have not yet been approved by the State of Illinois and federal government and are therefore less certain—ambulance transport expense reimbursements from the federal government and a graduated real estate transfer tax requiring approval from Springfield, worth $133 million and $50 million, respectively. City budget staff have indicated that the State has submitted the reimbursement plan to the federal government and that the Mayor will introduce a revised budget with additional savings to replace the real estate transfer tax if necessary.
The proposal also relies on some one-time revenue sources—including a record $74 million in TIF surplus and at least $200 million in upfront savings from a debt refinancing plan in addition to fund sweeps and using some assigned fund balance. Using one-time resources for recurring expenditures is not an ideal practice and will cause budget difficulties in future years.
In the coming years the City will face another large increase in required pension contributions, at which point all of the City’s funds will be on an actuarially calculated funding schedule. In order for the new pension funding schedules to fulfil their purpose of putting the City’s funds on a more sustainable path, it is imperative that the City develop a long-term funding plan.
“Developing a rational, reliable plan for pension funding will be one of the most important jobs Mayor Lightfoot and the City Council will face in the coming years,” said Msall.
In addition to developing a long-term financial plan, the report recommends that the City work with the Governor’s Pension Consolidation Task Force to explore the consolidation of Chicago’s public safety pension funds, seek reasonable and sustainable collective bargaining agreements and re-evaluate the use of TIF funds, among others.