Mayor Lori Lightfoot is poised to win approval of her $16.7 billion 2022 budget on Wednesday, garnering progressive support (and some conservative pushback) on her plan to plot Chicago’s COVID recovery.
“It’s less rebuild or come back strong, and really more of a repair and refurbish kind of an approach,” University of Chicago Harris School Professor Justin Marlowe says on this week’s episode of the A.D. Q&A podcast, the Tuesday edition of Juice, Crain’s daily newsletter on power and politics. It’s a “very prudent budget,” given that Chicago only recently began to see its revenues fully rebound from the last recession.
The city lost $1.5 billion in revenues in 2020 and 2021 and managed to make it through the pandemic so far without major tax hikes, program cuts or layoffs. The city is using $1.17 billion of the total $1.9 billion in American Rescue Plan money to replace revenues lost during the current and 2022 fiscal year budgets, leaving a scant $152.4 million to address any gaps next at the end of 2022. Jennie Bennett, the city’s CFO, told Crain’s last week that using the bulk of its relief money to patch up holes is “an extraordinarily appropriate” use of the federal money, and exactly what Chicago and other big cities wanted out of ARP.
But the pathway isn’t clear ahead, warns Marlowe, associate director of the U of C’s Center for Municipal Finance: The models that revenue forecasters have relied on don’t work anymore, and the playbook needs a rewrite. In terms of revenue, this upcoming budget year is probably going to look more like the depths of the pandemic than 2018 or 2019, but no one has a good read on it. For a city like Chicago that depends on consumption taxes, they’ll have to bank on what they do well and hope for the best until the fog clears, he says. “Certainly it feels risky.”
“For all cities today, the options are very, very limited. The truth is, we’ve never experienced anything like this. This is going to fundamentally alter the way we think about local government finance. It’s going to fundamentally change how we think about where people work, what sorts of activity we tax, what’s a reasonable—or fair—tax. All these big, big fundamental questions in local government finance are going to have to be revisited.”
The city is using some of that ARP money—plus a round of general obligation borrowing—for a series of new programs and expansions of existing ones focused on affordable housing, help for families and the homeless, and climate resilience. Bennett stressed that the city knows “these moneys are one time in nature,” which is why the programs are pilots or one-and-done recovery projects. The city is tracking outcomes—socially and financially—of those to figure out which ones might be a good long-term investment, she says.
Local watchdog group the Civic Federation warns that reliance on tax revenues rebounding is especially worrying because of the major financial issue pre-dating COVID: pensions and debt service.
Per the Civic Federation, debt service appropriations in the 2022 fiscal year make up 23% of total net appropriations—a high ratio. Pension appropriations are rising to $2.3 billion the same year, an increase of $461.5 million from the one before. Without revenue growth, the Civic Federation warned, the bill for pensions will crowd out other city services. The city is banking on revenues from a new Chicago casino to help reach those targets.
Bids for hopeful casino builders are due Friday, but operators aren’t likely to open their doors for years. Since Mayor Rahm Emanuel put the city’s four pension funds on the path to actuarial funding, the city has increasingly relied on property taxes and a hodgepodge of other revenue sources to reach pension funding targets:
via Crain’s Chicago Business
October 26, 2021 at 08:33AM