Chicago’s budget deficit may force Mayor Johnson to shift his taxation policy

Ashlee Rezin/Sun-Times

If nothing else, Mayor Brandon Johnson’s initial budget proposal makes one thing abundantly clear: he is committed to following through on his campaign promise to push a progressive agenda. From re-establishing Chicago’s Department of the Environment, to allocating funding to open two new mental health clinics and support the creation of more youth jobs, Johnson has shown he’s willing to put the city’s money where his mouth said it should go during his campaign. That’s the good news.

But as a candidate for mayor, Johnson outlined an aggressive plan to spend $1 billion more annually on various initiatives that would “invest in people.” Unfortunately, he was only able to find the revenue to fund about $27 million in new spending on those initiatives in his budget proposal. The reasons for that are twofold. 

First, to accommodate things like scheduled payroll growth, the migrant crisis, and his pledge to avoid raising property taxes, Johnson had to close an estimated $538 million deficit in the $5.7 billion Corporate Fund, Chicago’s main budget for covering core services like police, fire, streets and sanitation, human services, etc. Like his predecessors, Johnson closed that deficit by relying primarily on one-time fixes, which by their very nature aren’t sustainable. 

For instance, he declared a significant, $434 million, tax-increment financing surplus. Of course, Chicago has to share that surplus with the other local governmental authorities that levy property taxes in the city, like Chicago Public Schools. So the net to the Corporate Fund will be about $100 million. Which helps this year, but is one-time revenue and will have to be replaced in next year’s budget. 

He filled the remaining deficit the way first-time mayors frequently do: by finding savings that may or may not materialize, covering everything from $112.6 million in newly discovered operating efficiencies, to $41.5 million from an anticipated reduction in health care costs from better case management, to another $41.5 million in projected savings from eliminating some yet-to-be specified vacant positions. The mayor is also counting on: $35 million from enhanced revenue collection, $89.2 billion in projected savings from refinancing existing city bonds (hopefully this isn’t another “scoop and toss” deal, where current payments are reduced at the expense of greater long-term costs), and a bump in the revenue estimate for the coming year of $186.8 million.

A structural deficit, new tax policy

Given that most of those deficit fillers are one-time in nature, odds are next year the Corporate Fund will start with a budget shortfall approximating this year’s, likely made worse by a number of factors. For instance, there’s the natural growth in compensation costs in police, firefighter, and other workers’ union contracts. Then there’s the additional cost of filling at least some of the estimated 1,700 police officer vacancies.

Moreover, the mayor’s current proposal only appropriates $150 million for the migrant crisis. Ald. Carlos Ramirez-Rose (35th), the mayor’s floor leader, acknowledged that will cover only about six months of expenditures. So without additional state or federal aid, the Corporate Fund is looking at an additional $150 million shortfall. 

Then there’s the anticipated growth in annual pension payments, created in part by state law and in part by investment losses that Chicago’s pensions suffered last year. Fortunately, Johnson has opted to mitigate some of that potential cost growth by continuing the responsible fiscal practice of paying more into the systems than is required by law. 

The bigger issue, however, is that Chicago’s fiscal system doesn’t generate sufficient, recurring revenue to simultaneously support the mayor’s progressive agenda and continue to fund current service levels, satisfy the city’s debt obligations to both bond holders and its pension systems, fill a significant number of extant vacancies in sworn police officer positions, and deal effectively and humanely with the migrant crisis. 

Which means to realize his vision of a more equitable Chicago that invests in its people, Johnson may have to rethink some of his stances on tax policy.

To date, Johnson has made it clear he opposes regressive taxation — that is taxes which take a greater percentage of the earnings of low- to moderate-income families than affluent families. Indeed, his opposition to regressive taxation is the main reason Johnson chose not to take the annual inflationary increase in the city’s property tax levy, which created a $90 million hole in the 2024 budget. 

And while Johnson is correct in believing progressive taxes are fairer to people, the sad truth is virtually every tax or fee available to local governments like Chicago are regressive. True, as a candidate Johnson suggested creating a progressive financial transactions tax, but Gov. J.B. Pritzker just killed any hope it would pass. 

Which creates a difficult policy question for the new mayor: Are low-income families better off paying a few dollars more in regressive taxes, in exchange for receiving the benefits that will flow from making the significant new investments he wants to make — or saving a few bucks in taxation at the cost of continued disinvestment in their families and communities? 

Ralph Martire is executive director of the Center for Tax and Budget Accountability, a bipartisan fiscal policy think tank, and is the Arthur Rubloff Professor of Public Policy at Roosevelt University. 

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