October 14, 2021
Concerns remain regarding pension funding and sustainability
CHICAGO – In a report released today, the Civic Federation expressed its support for Chicago Mayor Lori Lightfoot’s proposed FY2022 budget of $10.6 billion, because it leverages federal COVID-relief funding to balance the budget, maintain service levels and make needed investments in infrastructure. While supporting the spending package overall, the Federation maintains some concerns regarding the long-term sustainability of the City’s finances after federal American Rescue Plan (ARP) stimulus funds have been spent within the next few years.
The full analysis is available at civicfed.org/ChicagoFY2022.
As detailed in the report, the City’s proposed budget prudently matches one-time revenues, such as federal revenue replacement money and debt refinancing savings, to one-time expenditures in line with best fiscal practices. The Civic Federation, along with many other business and civic groups, was a strong proponent of the federal government providing support to all state and local governments during the economic dislocations caused by the pandemic.
“While this federal windfall has been good news for stabilizing the City’s finances over the short-term, these funds are not recurring and only provide fiscal breathing room for a couple years at most,” said Civic Federation President Laurence Msall. “Accordingly, the Federation recommends that the City work to disclose additional detail on possible measures that could be taken to address potential future budget challenges, both after the ARP funds are exhausted and in the event the economic recovery falls short of projections.”
Of Chicago’s $1.9 billion in ARP funding, $1.3 billion will go toward closing the budget gaps in 2021, 2022 and 2023. The remaining $567 million will fund investments in services and infrastructure. Despite the cash infusion, the City will continue to face structural budget challenges, primarily due to the high annual cost of paying off long-term liabilities such as debt and ever-increasing pension obligations. Pension costs alone account for nearly a quarter of the City’s spending, which crowds out spending on basic operations and services.
“Unless the City of Chicago and State of Illinois see a very robust economic recovery, there will not be enough money to sustain growing pension and debt obligations while providing the same level of services,” said Msall. “Chicago officials must continue to make structural changes to continue improving the City’s position. The City cannot simply look to increasing revenues to meet future needs.”
Among other recommendations, the Federation encourages the City of Chicago to develop a long-term revenue plan for funding its four pension funds. Pension contributions will continue to grow over time, albeit not as drastically as they have in the past several years. The City plans to rely on revenue from a future Chicago casino to serve as a funding source. However, as evidenced by unmet projections at the State-level, gambling revenue is highly unreliable. Other, more stable sources of revenue should be dedicated to supplement pension funding over the long-term.