Chicago taxpayers on the hook for extra $2 billion under Lightfoot plan

Chicago taxpayers on the hook for extra $2 billion under Lightfoot plan

Lightfoot’s budget depends on borrowing and property tax hikes.

Chicago taxpayers will be hit with an extra $2 billion of city debt on top of property tax hikes under Mayor Lori Lightfoot’s budget proposal, according to Crain’s Chicago Business.

Lightfoot plans to borrow funds to provide short-term relief to the city’s finances with the goal of saving $450 million this year and $500 million in 2021. For the next 30 years, it will cost taxpayers $207 million annually.

The mayor’s office says it will save $74 million long-term. Of this, $43 million will be refinanced. These figures are based on 4% inflation rates, higher than the current rates. Over the next 30 years of repayment, the rate will likely vary.

This financial tactic is called a “scoop and toss.” It means the city borrows more than it needs to after refinancing existing debt, but defers payments on the new debt farther into the future, leaving others responsible for picking up the tab.   

Debt refinancing is a short-term revenue measure that does not help close the structural deficit. The city can only rely on debt refinancing so long as private bond buyers remain willing to purchase city debts.

Lightfoot also plans to borrow another $15 million that marijuana sales taxes will repay. This is part of a deal with the Chicago Federation of Labor to avoid laying off 350 union employees, which was originally the mayor’s plan. This plan applies to workers making less than $100,000, meaning higher paid city employees will still need to take furloughs. Positions that are currently vacant will still not be filled.

On top of the extra barrowing and a future debt burden for taxpayers, Chicago residents can still expect a property tax increase. Lightfoot is hoping for an extra $93.9 million from property taxes and for rates to automatically increase with inflation. An Illinois Policy Institute analysis found the average Chicago homeowner will pay $104 to $255 more under this plan.

Lightfoot is also proposing a 3-cent gas tax increase.

The real problem choking Chicago’s budget is pensions. In 2021, pensions are set to take up 14.2% of the city’s budget. Starting in 2022, those contributions will be actuarially determined, meaning investment losses will drive taxpayer costs higher. This means pensions could grow to be an even larger part of the city’s budget, in part because of losses from COVID-19.

Lightfoot called on state lawmakers to pursue meaningful pension reform to help her city deal with this worsening problem, but did not specify what reforms she wanted to see or call for a constitutional amendment. Changing the constitution is the only way for Illinois to truly alleviate the growing pension burdens on municipalities.

Lightfoot should support an amendment to the state constitution just as former Mayor Rahm Emanuel did that would makes changes to future, unearned benefits to create a more sustainable system.

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