Report offers $1B in fixes as Chicago budget talks break down
The Chicago City Council rejected Mayor Brandon Johnson’s economically harmful tax proposals, but a report offers $1 billion in solutions
Chicago Mayor Brandon Johnson’s administration paid over $3 million to consulting giant EY to find ways to fix Chicago’s over $1 billion in budget woes, but when the accountants did so his administration mostly ignored them and now there’s a budget impasse.
What happened?
City council members recently rejected by a vote of 25-10 Johnson’s $16.6 billion budget plan, which included nearly $600 million in new taxes. A proposed head tax, which would have added a $21-per-month fee per employee on businesses with over 100 workers, was the main point of contention.
Aldermen rightfully noted the measure would only drive away more businesses, kill opportunity and inadvertently push higher property taxes on residents to make up the difference from lost revenue.
How did Johnson react? He pushed for a higher head tax of $33 a month on businesses with over 500 workers.
This defeat marks just the most recent blow to the mayor’s push for “progressive taxes,” which had already seen over $800 million in failed tax and fee proposals.
What is next?
With the Dec. 31 deadline approaching for a final budget, aldermen are now scrambling for alternative strategies to close the city’s projected $1.15 billion budget hole. Potential solutions include a more aggressive debt collection effort: Chicago has nearly $2 billion in uncollected debt, according to Ald. Scott Waguespack.
Other solutions include service cuts, a new delivery tax and increases to garbage collection fees, which haven’t changed since 2015.
Johnson continues to push for alternative versions of the head tax and cloud computing tax. His plans rely on nearly $1 billion in tax increment financing fund sweeps, $449 million in new loans to be paid over five years for the Chicago firefighters’ contract and to settle lawsuits, and a $120 million reduction in the city’s advanced pension payments.
It’s no wonder aldermen are uneasy. This budget would fail to stabilize the city’s long-term finances and damage Chicago’s long-term economic growth.
The city’s bond ratings are already near rock bottom and this plan would likely see S&P lower it even further, increasing future borrowing costs. The city also faces sluggish economic growth, businesses leaving and persistently high unemployment rates.
Chicago has options for alternatives
Chicago has alternatives. EY’s report identified up to $1.4 billion in potential new revenue and cost savings.
Options include modernizing special event fees to recover more of the city’s costs and using digitized permitting to speed up approval times and improve data sharing. Auditors also found major inefficiencies in fleet services when they compared Chicago’s 5,000-vehicle light- and medium-duty fleet to peer cities, including problems in vehicle acquisition, maintenance and utilization.
Real-estate reforms offer some of the more immediate budget impacts through better management of Chicago’s 500 city-owned buildings and 10,400 vacant lots. Through targeted consolidations and land sales alone, the city could net $30 million in the first year and over $200 million in a decade.
Employee benefits are another major area of opportunity. EY identified up to $103 million in savings potential through changes in contributions, copays, plan design and pharmacy benefits, although most reforms would require strong cooperation with the city’s labor unions. For more immediate relief, EY identified $17.3 million to $25.3 million in savings from non-union employee benefit changes, including adjusting non-union employee contributions, eliminating the HMO’s stop-loss coverage and implementing workers compensation return-to-work programs.
Similarly, organizational analysis identified widespread back-office duplication, slow hiring, non-critical vacancies and outdated manual processes that can be addressed in the short and medium term.
Finally, EY’s public safety analysis found 43 potential reforms across the fire and police departments as well as the offices of Emergency Management and Communication and Public Safety Administration. These range from minimum manning adjustments to greater use of civilian workers and better overtime management.
Together, these reforms could net the city $90 million to $164 million in short-term revenue and up to $1.4 billion over 10 years. Many would require strong collaboration with labor unions and, in some cases, state lawmaker action to implement.
Despite this, Johnson’s proposed budget incorporates only a fraction of options from the report totaling only $12.4 million of the $164 million in potential first-year savings.
Chicago needs stability, not more cash grabs
Beyond EY’s recommendations, city leaders should look at other options such as rightsizing department spending, reducing bloated administrative costs, reworking vendor contracts and using internal audits to root out waste. Doing so could control personnel costs, which are projected to rise $500 million in just a year. Chicago must also reduce department and program spending that was artificially inflated by federal pandemic funds.
Chicagoans deserve a city that fosters growth and opportunity. Instead, short-sighted policies and repeated cash grabs to plug self-inflicted budget gaps have undercut these ideals.
Many of those problems can still be fixed, and before Dec. 31.