Exclude staff costs, Chicago spending still spiked $3.6B in just 6 years

Chicago’s 2025 budget is facing a nearly $1 billion gap. Mayor Brandon Johnson’s plan to close it: increase taxes. The city’s rising non-personnel costs, now at $6.6 billion, will outpace its grant funding, squeeze taxpayers and increase regressive fees.

As the COVID-19 relief funds used to prop up Chicago’s budget dwindle, the remaining grant funding for 2025 won’t be enough to cover the city’s $6.6 billion in non-personnel costs.

Expect a strain on city funds, a rise in taxes and regressive fees, and more pain closing Chicago’s $982 million budget deficit.

Mayor Brandon Johnson received initial approval Dec. 10 from the City Council Finance Committee to raise property taxes $68.5 million, boost lease taxes $128 million, raise streaming service taxes by $13 million and install more speed cameras to raise $11 million. The full council could and should still reject Johnson’s new taxes.

Chicago’s budget woes should not be fixed with endless tax increases. They should be fixed by reducing non-personnel costs, which is vital for resolving the city’s budget gap and securing long-term stability. Cutting spending on non-essential projects, implementing efficiency audits and enacting comprehensive pension reform are all fiscal strategies the city should prioritize.

Chicago received an influx of federal pandemic relief between 2022 and 2024, bolstering the budget. Instead of using these temporary funds to fix its financial issues, the city chose to increase spending. Non-personnel spending is the main source of the city’s budget growth since 2019, adding more than $3.6 billion.

These costs cover infrastructure projects, cultural events, programmatic expenses, legal settlements and other expenditures related to the city’s day-to-day maintenance and operations. They will be 38% of Chicago’s $17.3 billion budget in 2025, nearly doubling their cost to the corporate fund and adding $927 million to the enterprise fund since 2019.

Although Johnson needs to commit to reducing spending, he remains focused on using taxes to finance the city’s budget. His plan to raise property taxes by $300 million was changed to $68 million with the rest coming from a litany of other new taxes.

Imposing more taxes on an already tax-burdened city won’t help Chicagoans. It will intensify the city’s housing affordability crisis and the continued departure of its businesses and residents. To prepare a balanced budget for fiscal year 2025 and attain prolonged fiscal stability, Chicago must shrink its non-personnel expenditures.

Non-personnel costs strain Chicago’s funds

Despite a $2.9 billion increase in total grant collections since 2019, largely because of an influx of pandemic aid in 2022, the city neglected to use these funds to solve its fiscal issues. At the same time, its non-personnel spending continued to balloon.

Now, at least $2 billion in non-personnel costs will not be covered by grants, but squeezed from a combination of the city’s corporate, enterprise and special revenue funds. This undermines the budget’s sustainability and raises taxes and regressive fees.

In 2025, non-personnel costs will consume the second-largest share of the city’s $5.6 billion corporate fund – the tax-supported backbone of Chicago’s budget.

Expenditures on reimbursements, legal settlements, bond proceeds and non-personnel programmatic expenses are the primary drivers of these rising corporate fund costs. Excluding pension contributions, these costs, which have nearly tripled since 2019, will account for $760 million of Chicago’s corporate fund in 2025.

Contractual services provided by external vendors for consulting, maintenance, repairs, daily operations, equipment rental and more will account for 10.4%, or $583.4 million, of non-personnel costs financed by the corporate fund. These costs have grown nearly 40% since 2019.

Another substantial portion of the city’s $6.6 billion non-personnel costs in 2025 will be financed by the city’s $3.7 billion enterprise fund – the fund for infrastructure projects supported by fees for the city’s water, sewage and airport services.

Too much strain on the city’s enterprise fund can raise the costs of using the services that finance it, reduce the quality of those services and delay infrastructure and capital improvement projects. It can also divert more money from the corporate fund to cover any leftover costs, further impacting taxpayers.

Many of the service fees that support Chicago’s enterprise fund also have regressive components. For example, airline fees for baggage, gate use and seat assignment impact a larger share of economy class tickets and decrease long-term demand for services. Between 2019 and 2025, O’Hare lost 100,000 flights and its revenues decreased 6%, from $56.5 million to $53 million.

Water fund fees are also regressive. In 2018, they were $3.95 per 1,000 gallons, and by 2024, they’ve risen to $4.70. These rates are tied to the Consumer Price Index, which can be problematic because different socioeconomic groups are impacted by inflation in different ways. For lower-income individuals, inflation often outpaces their purchasing power.

Lastly, a portion of special revenue funds will finance non-personnel costs in 2025. These special revenue funds include the city’s Motor Fuel Tax Fund and the Vehicle Tax Fund. The Motor Fuel Tax fund, supported by a $0.47 per gallon tax on gasoline and $0.55 tax per gallon of diesel fuel, has grown 126% since 2019.

Of the $148.6 million the city collects from this tax, $20 million goes to the Department of Fleet and Facility Management, $19 million goes to the Department of Streets and Sanitation, and about $95 million goes to the Chicago Department of Transportation.

Departmental non-personnel expenses not covered by grant funds

The largest departmental sources of growth in non-personnel spending not financed by grants are the Department of Aviation, the Department of Fleet and Facility Management, the Department of Public Safety Administration, the Department of Planning and Development, and the Department of Family and Support Services.

Collectively, the non-personnel costs of these departments will consume $394.9 million of Chicago’s corporate fund and $754.24 million of its enterprise fund in 2025.

The Department of Aviation will spend about $1.4 billion on non-personnel services in 2025. This includes $236.6 million for facility management, $101.8 million for airfield operations, and $231 million for ground transportation and parking facilities. The bulk of the department’s non-personnel costs, at $735.7 million, come from engineering and architectural services for airport development projects.

The O’Hare International Airport expansion costs have exceeded grant funds and soared $1.5 billion over budget. As a result, United Airlines and American Airlines, the two largest carriers, have requested Johnson to scale back the project. This is because non-personnel costs are passed on to passengers in the form of higher airline fees, ticket prices and taxes. Higher costs deter passengers’ long-term demand for services.

The Chicago Police Department will spend $319.7 million on non-personnel services in 2025. These costs include $12.7 million for contractual services, $10.3 million for materials and equipment, $700,000 for transfers and reimbursements, and $82.6 million for legal settlements and judgments.

Despite its high non-personnel costs, the Chicago Police Department’s efficiency and productivity have shown little improvement. Meanwhile, the city is continuing to cut public safety positions and violent crime is increasing.

Policy recommendations

High non-personnel costs hinder the financial longevity of the city’s day-to-day operations, infrastructure projects and community programs. These costs strain the city’s resources, raising taxes and regressive fees.

Instead of finding more creative ways to tax Chicagoans, as Johnson has proposed, the city should pursue cost-saving alternatives and long-term budgeting solutions to reduce its non-personnel expenses. This includes:

• Cutting costs for non-essential projects, especially costs that increase regressive fees or do not contribute to frontline, public-safety activities.
• Consolidating municipal departments, such as the Regional Transportation Authority systems (Metra, Pace, CTA), and various school districts, to enhance efficient resource allocation.
• Creating a task force to evaluate fund allocation and determine required non-personnel spending reductions to increase departmental efficiency. For example, the Department of Aviation and the Chicago Police Department have had little change in efficiency and project completion despite high non-personnel costs.
• Fixing Chicago’s pension crisis with comprehensive reform, including placing a state constitutional amendment before voters. Additionally, capping the automatic 3% annual increases in cost-of-living adjustments and tying them to inflation rates and implementing reasonable salary caps would help manage pension costs and save the city billions in the long term.

By prioritizing these strategic measures, Chicago can stabilize the budget without financially burdening residents and businesses. Cuts rather than more taxes can arrest the city’s downward spiral.