Analysis also explores revenue options and offers recommendations for reform
(CHICAGO) – The Civic Federation released a report today detailing the City of Chicago’s major financial challenges, as well as options and recommendations to continue to stabilize the City’s financial position. In May 2023, Brandon Johnson took office as Chicago’s new Mayor and 13 new alderpersons joined City Council. The report, which is available at civicfed.org/ChicagoFinancialChallenges2023, is intended to serve as a primer for the new administration on key fiscal matters.
The report highlights five major fiscal challenges that the City’s new political leadership must address to stabilize the City’s finances: 1) Recovery from the COVID-19 pandemic and the end of federal recovery funds; 2) Chicago’s public safety crisis; 3) the City’s chronically high liability burden; 4) funding the City’s enormous pension shortfall; and 5) the City’s persistent structural deficit. The magnitude of these financial obstacles could impact the City’s ability to fund government services. The report emphasizes that these financial challenges are not an exhaustive list and also do not directly address the major challenges facing the City’s sister agencies such as the Chicago Public Schools and Chicago Transit Authority.
“The Civic Federation is concerned about how the City of Chicago will continue to fund the same level of operations while supporting its enormous long-term obligations, especially during high inflationary times and with a potential national economic downturn looming, all while several economic sectors have not fully recovered from the pandemic,” said Civic Federation Acting President Sarah Wetmore. “All of these factors could complicate the City’s ability to continue to address its existing financial challenges.”
The new report from the Civic Federation offers structural, budgetary and management recommendations for consideration by the City’s new leadership. It also evaluates the pros and cons associated with a number of potential revenue sources, while not taking a position on them. Some of the revenue options presented would require approval of legislation by the Illinois General Assembly and the Governor, while others could be done through the City’s home rule authority.
Among the pressing challenges highlighted in the report is the City’s critical need for improved community safety and police department reforms in alignment with the Chicago Police Department Consent Decree. The Police Department has a budget of nearly $2 billion and some of the highest per-capita staffing levels in the country, yet Chicago is still experiencing high violent crime levels well above pre-pandemic levels. While the federal Consent Decree serves as a strong guide for the Department, the City’s communication to the public on progress made toward compliance with the Decree has been insufficient. In its new report, the Civic Federation recommends improving transparency around police reform efforts as well as including additional information in budget documents.
Another financial obstacle facing the City is its high liability burden, including long-term obligations owed toward bonds and pensions. The City’s four pension funds are severely underfunded. While the City will make supplemental contributions to the pension funds in FY2023 totaling $242 million in addition to the $2.7 billion required pension contribution this year, the cost of pensions will continue to increase over time based on the back-loaded nature of the funding schedule. The City is in need of additional stable sources of funding to address ongoing annual increases in pension costs. The cost of annual debt payments and pension contributions also create significant budget pressure as they use up a substantial portion of City revenues each year, crowding out funds available for other areas of spending.
“Over the last decade, the City has made progress in addressing some of its persistent financial challenges,” Wetmore said. “This report is intended to help the new administration and City Council continue that progress in the coming years.”