By Adam Schuster
Tuesday, October
19, 2021
Finances are so shaky in Chicago
that, even with an infusion of $3.5 billion in federal aid, Mayor Lori
Lightfoot included a $76.5 million
property-tax hike in her new budget plan. That tax
hike would raise residential-property-tax bills by an average of $72 to $180, depending on the region of the city.
Chicago’s business community directly
pushed back on the mayor’s approach. “With the historic level of federal
funding coming to the city we can avoid a property-tax increase that impacts
all residents and businesses,” the Chicagoland Chamber of Commerce responded. They’re right, but reformers face an uphill battle to convince the
mayor and city council to protect already overburdened homeowners and
businesses.
Can anything be done to save the financial
future of one of America’s largest and best cities?
In fact, a quick glance at the city’s
budget makes the solution obvious: pension reform. But that requires
lawmakers in the state capitol to give voters the chance to vote on a
constitutional amendment to unlock the state’s unyielding pension clause. So
far, they’ve lacked the courage to tell Illinois’ politically dominant
government unions it needs to be done.
Let’s go through the numbers.
The business community is right that a
property-tax increase is unnecessary considering the $3.5 billion in pandemic-related federal aid. Lightfoot’s proposed budget uses
$782 million in federal funds to replace 2021 revenues, $385 million for 2022,
and reserves just over $152 million for 2023 revenue replacement.
That leaves roughly $581 million
in flexible aid currently dedicated to new program
spending. The property-tax hike could be prevented by using just 2.5 percent of
Chicago’s $1.9 billion in American Rescue Plan funding.
But instead of using the aid to prevent
tax hikes that would impede Chicago’s economic recovery, the city has proposed
to use those billions to create new programs. The mayor’s proposed budget
increases spending by roughly $1.2
billion on a range of city services
including the Chicago Police Department, affordable housing, and mental-health
services, and a pilot program for a universal basic income. Unfortunately, that
spending is propped up by one-time federal aid that expires by 2024 — meaning
many programs will have to be cut or financed with significant tax hikes within
just two years.
And about those pensions: Pension costs
will consume more than $2.3 billion of the city’s budget, or 21.4 percent of
its own source revenue, excluding state and federal grants. That’s more than a
$967 million increase in pension spending since Lightfoot became mayor and $461
million more than last year alone, a spike that accounts for 63 percent of the
$733 million 2022 budget deficit reported by Lightfoot in August.
Chicago’s rapid and unsustainable growth
in pension spending can only be slowed through benefit reforms.
If Lightfoot wants to live up to the rhetoric
in her budget address — in which she promised to invest in Chicago’s economic
recovery while giving predictability and stability to taxpayers — she needs to
develop and execute a plan to match long-term revenues and expenses. Only a
long-term balanced budget can give city residents confidence that programs will
continue and taxes will remain affordable, and only a pension amendment can
deliver balance.
Solving the pension crisis will require
amending the Illinois constitution to adjust the future growth in pension
benefits for current workers and retirees. This is the only way to right the
ship in Chicago. And as one of the state’s most prominent elected Democrats,
Lightfoot has a duty to use her platform to push state lawmakers for change
that will protect city residents.
To date, she’s called the pension
crisis “unsustainable”
and the city’s “biggest problem” but has never endorsed a pension amendment, the only available option to
fix it.
The good news for the city is that the
budget has not yet been finalized: There is still time to cancel tax hikes that
will put Chicago’s economy even further behind other major cities. Chicago has
an opportunity to enter 2022 on better economic footing than 2021.
Americans across the nation have
contributed to bailouts for the city. It’s time to be good stewards and use
those funds to help Chicago’s recovery. For the next few years, federal aid
makes that relatively easier to do. Lightfoot should use that breathing room to
become the state’s biggest advocate for pension reform, before aid dries up in
2024.
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