3 ways to balance Chicago’s next budget without tax hikes
Chicago might have just avoided a property tax hike, but city leaders couldn’t figure out how to pass the 2025 budget without other tax and fee increases. Here’s what the city should do to avoid repeating the same budgeting mistakes next year.
Chicago’s annual budget process is typically a desperate scramble that leaves taxpayers wounded when it could be a measured, responsible process if city leaders would just do three things: cut non-essential staff, cut non-essential projects and push government pension reform.
Although Chicago Mayor Brandon Johnson was forced to abandon his plans for a $300 million property tax hike, his 2025 budget adds $181.6 million in other tax and fee increases. It does little to fix enduring structural issues contributing to the city’s big budget deficit.
Chicago’s persistent budget challenges include:
- Reckless spending on inefficient programs and projects.
- Overstaffing of non-essential positions while gutting critical public safety roles, even with some of the highest violent crime rates in recent history.
- Overreliance on short-term budget tactics, such as sweeping tax increment financing funds or postponing debt obligations, which worsen financial problems in the future.
- Some of the most overpromised pensions in the nation.
The city’s deficit, excluding the pension shortfall, is projected to reach anywhere from $1.1 billion in 2026 to nearly $2 billion 2027, depending on the year’s economic performance. To alleviate the burden on Chicago’s taxpayers, the city must make drastic cuts and pursue sustainable solutions.
While Johnson stated 70% of Chicago’s 2025 budget will rely on structural solutions to generate steady revenue to cover future gaps, his math doesn’t add up. The city will make $154.5 million in cuts in 2025, but much of this will simply come from delaying its debt payments and adding interest that it must eventually pay. Although the city’s proposed “structural fixes and operational efficiencies” are projected to save about $500 million in 2025, it is unclear what those are and whether they are repeatable.
With Johnson’s failure to pass the $300 million property tax hike or his real estate transfer tax, voters have made it clear they don’t want the city to solve its budget problems with higher taxes. The city can no longer balance its budget with millions in federal pandemic relief funds, which will run out in 2026.
Below are three long-term fixes Chicago can and should implement to ensure it doesn’t outspend its revenue.
1) Spending cuts for non-essential staff
Overall, personnel costs have increased by nearly $750 million since 2019, making up $4.2 billion of Chicago’s total budget. Personnel costs also make up the largest share of the city’s tax- and fee-supported corporate fund, at $3.5 billion.
When it comes to reducing these costs, the city has continually relied on making cuts to public safety. The city has eliminated over 2,100 public safety roles since 2019, while adding 184 administrative positions and $145 million in administrative costs.
To align personnel costs with what taxpayers can afford, the city must cut down on non-essential staff. This means reducing administrative bloat and implementing stricter hiring freezes on such roles. It must also make personnel cuts to sectors other than public safety, so the city can effectively address its ongoing crime problem.
2) Spending cuts for non-essential projects
The largest total growth in the budget has come from non-personnel costs to support the city’s infrastructure projects and programs. These costs have ballooned since 2019, adding nearly $3.5 billion.
Nearly $1.5 billion of the $6.5 billion in non-personnel costs come from the corporate fund. The city’s non-personnel spending has also been supported by hikes in fees for city services, which finance Chicago’s enterprise fund. This includes hikes in the city’s water and sewage fees from $3.95 to $4.70 per 1,000 gallons since 2018, along with hikes in airport costs at O’Hare and Midway.
Many of the city’s projects have been inefficient and over budget. For example, the O’Hare expansion has already exceeded its budget by $1.5 billion, resulting in a litany of airport service fee increases and requests from two major airlines for the mayor to downsize the project.
Chicago has also seen poor return on investments in its projects. This includes a $12 billion investment into the two airports, which have seen 125,000 fewer flights since the pandemic, and a $600 million increase in CTA spending, which has seen a 30% drop in ridership from pre-pandemic levels, based on 2024 ridership projections.
To ease high non-personnel costs, the city must cut down on non-essential projects. It must also find a way to more thoroughly analyze the costs versus benefits of proposed projects, creating a task force to evaluate fund allocation and determine a level of non-personnel spending taxpayers can afford.
3) Addressing the escalating pension crisis
Finally, one of the city’s major pain points is rising pension costs. Pensions make up $2.92 billion of the city’s overall budget, over $1.6 billion of which is paid through property taxes. Chicago’s pension costs are also 4.7 times higher than just five years ago.
Despite the high expenditure, the city has some of the worst-funded pensions in the country. Additionally, 3% compounding cost-of-living adjustments for Tier 1 pension plans have proven disastrous for the city’s finances and have taken a heavy toll on property tax bills.
The city must support an amendment to the Illinois Constitution so the growth in future government pension cost can be controlled. Otherwise, the systems will fail or require massive cash infusions from taxpayers. Chicago leaders need to use their influence to lobby the governor and the Illinois General Assembly to propose a constitutional amendment for consideration by Illinois voters.
Conclusion
If the city is ever going to get its finances on track, it must avoid its long tradition of using one-time solutions and postponing tough financial decisions, such as paying off debt and cutting costs. Chicago’s debt sits at $40,600 per taxpayer, according to Truth in Accounting.
City spending has grown out of control. Without reform, Chicago residents and businesses will continue to suffer under a growing tax burden – or decide to leave – as the city inches closer to a financial reckoning no amount of budgetary maneuvering can prevent.