Chicago’s financial health remains in critical condition, with a baseline corporate fund deficit of $1.15 billion projected for fiscal year 2026 – continuing over two decades of projected budget shortfalls and a legacy of mismanagement.

Chicago Mayor Brandon Johnson now admits the city’s finances have “reached the point of no return.” He identifies a “revenue challenge” as the culprit. It’s not.

Chicago’s fiscal mismanagement is about overspending. As detailed below, the city’s budget and its deficits have exploded during the past six years.

Debt refinancings, sweeping tax increment financing funds and last-minute cash grabs are hollow tricks that have not – and cannot – solve Chicago’s fiscal crisis.

Chicago needs to prioritize financial responsibility and restraint. A common-sense approach to budgeting would stabilize Chicago’s finances, restore confidence among job creators and encourage economic growth that expands the city’s tax base. Ensuring Chicago has a pro-growth tax and regulatory climate will be crucial for achieving long-term prosperity.

To encourage economic and population growth, the city of Chicago should:

1. Establish a robust pro-growth economic environment to expand the tax base – not the burden – and foster enduring fiscal health.
2. Increase expenditures responsibly by capping budget growth in any year to the 10-year average growth in the consumer price index for all urban consumers.
3. Right-size programs to create at least $550 million in 2026 budget savings and offset recent spending increases.
4. Prioritize eliminating long-standing city job vacancies and filling critical roles, to reduce overtime costs and stop budgeting tricks enabled by backlogs of unfilled positions.
5. Support constitutional pension reform for long-term budget stability and advance interim measures, such as pension buybacks.
6. Secure immediate revenue without raising taxes, such as through Chicago Public Schools accountability.

With these reforms Chicago could achieve a $200 million structural surplus in 2026 alone. During the next three years, the city would cumulatively save $3.2 billion in spending, and bring in $568.2 million in short-term revenue. The reforms would eliminate the $3.5 billion cumulative, baseline corporate fund deficit and leave the city with annual budget surpluses.

If action is taken fast enough, some of these changes could even help reduce the $146 million budget shortfall in the current 2025 budget.

Chicago must shape its fiscal policies to foster economic and population growth. This is the surest path to long-lasting financial stability without further burdening taxpayers and risking further flight of people and businesses.

Chicago’s corporate fund squeeze: crowded costs, more taxes, few fixes

Chicago’s fiscal crisis is driven by persistent overspending. Since 2019 its total budget grew 62%, twice as fast as New York, Los Angeles and Houston. The biggest cost drivers: ever-larger pension payments, rising personnel costs and substantial growth in “finance general,” the city’s term for miscellaneous cross-departmental expenses, such as legal fees or bond payments.

From 2019 to 2025, Chicago’s net appropriations of local funds – the portion of the budget paid from the city’s own resources – have increased by $4.5 billion. This excludes restricted grant funding, interfund transfers and debt proceeds that don’t draw on local funds.

During the past six years, pension expenses have ballooned to $2.9 billion, and debt service costs have remained high, at around $2 billion. These now consume about 40% of Chicago’s net appropriations.

A significant share of net appropriations growth has come from Chicago’s corporate fund – the city’s general budget for discretionary funding and essentials, such as administration, police, fire, employee payrolls and benefits. The fund has increased by 51% in just six years, fueled by political decisions to increase spending and then hike taxes to cover rising costs. The corporate fund has also grown because it has been used to offset rising pension costs as they have outpaced property tax revenues.

Although the corporate fund expanded from about $3.8 billion in fiscal year 2019 to about $5.8 billion in 2025, Chicago’s chronic deficits have nonetheless worsened. City leaders used temporary federal aid to bolster higher departmental costs, massive pension bills and expensive union contracts, raising the corporate fund’s expenditures beyond sustainable levels. Entrenched overspending guarantees larger deficits ahead, even with record revenues.

From 2026 to 2028, the Office of Budget and Management forecasts Chicago will face a cumulative corporate fund deficit ranging between $2.52 billion to $5.19 billion, depending on economic conditions.

According to initial baseline projections, 2026 corporate fund expenditures will rise over $621 million above current levels, reaching $6.4 billion. The expenditure category of “financial costs,” which can include legal fees and other expenses, is projected to decline modestly. Those savings will be eclipsed by a $629 million surge in personnel costs.

During the past five years, Chicago buoyed its budget with massive federal funding, creating permanent spending commitments with those temporary dollars. The corporate fund’s revenues are set to decline by over $527 million as the city exhausts the last of that money.

The city has repeatedly leaned on tax hikes. Chicago now ranks among the most heavily taxed major cities in America. Its continued population and business losses reflect voters’ dissatisfaction with the city’s tax burden and persistent fiscal mismanagement.  They also compound Chicago’s problems because as they leave, fewer Chicagoans remain to be taxed.

Even the city’s aldermen are fed up with broken promises and a lack of long-term solutions, unanimously voting to kill Johnson’s $300 million property tax hike last year. Despite their resounding “no” and his scaled-back proposals also falling flat, Johnson’s 2025 budget still included $181 million in new taxes and fees, hitting cloud computing, Netflix, Uber and more.

With additional property taxes rendered politically unviable, a budget task force funded by the Johnson administration has floated 39 new tax and fee ideas for 2026 that could cost $1.65 billion, ranging from corporate head taxes to higher garbage fees. But these measures neither prevent future deficits nor fix Chicago’s overspending.

Chicago needs fiscal stability that fosters economic development and broadens the tax base. Spending reform and pro-growth policies can achieve that.

Here are six ways Chicago can get back on track.

1. Foster a pro-growth economic environment to expand the tax base – not the burden

Chicago has many advantages that should support strong, sustained economic growth. As the nation’s third-largest city, it boasts a deep pool of young talent and several world-renowned universities. It is a global leader in the finance and tech industries, and it serves as the region’s tourism and transportation hub, anchored by two major international airports.

Despite its strengths, Chicago’s economic growth has been anemic. The city’s population is stagnant, its high-end talent is leaving, firms are fleeing, new businesses aren’t forming, and social mobility remains low. Chicago’s hostile business climate, driven by high regulation and taxes, undercuts its natural and historic strengths. As a result, inflation has outpaced the city’s economic growth.

Future financial stability depends on building an economic environment in which businesses flourish, residents find opportunities and new talent from across the country chooses to settle and build careers. To accomplish this, Chicago needs:

• Fiscal stability.
• A pro-growth tax climate.
• Regulatory reform to spur private development and maintain competitiveness.
• Stronger workforce development.

First, the city must stabilize its finances to support long-term growth and limit future tax hikes. Restoring financial discipline and getting on board with constitutional pension reform would reduce financial risk and reassure business investors taxation will stay under control. Research shows fiscal stability is a prerequisite for economic growth and is essential for attracting private investment and expanding the tax base.

Second, Chicago needs a pro-growth tax climate. The city should prioritize simplifying the tax code. When it’s too difficult for businesses and individuals to navigate the tax code, it stifles growth and innovation. It can drive out investment as prospective businesses look for less complex tax environments.

Chicago needs to maintain a stable tax code to assure businesses their costs will not spiral. When taxes rise, businesses raise prices, cut costs and shrink investor returns, according to the U.S. Chamber of Commerce. These changes hurt job creators’ and investors’ decisions.

The city’s top priority should be limiting growth in property taxes because they are a key obstacle to attracting investment. A 0.452 percentage point increase in property tax rates decreased the number of firms by 2.7% to 3.2%, with manufacturing hit hardest, according to a study by the National Bureau of Economic Research. The message is clear: tax hikes raise costs and stifle business formation.

Chicago also needs to avoid raising rates and imposing other taxes that deter investment, such as real estate transfer taxes.

Third, to remain the major hub of the state’s economic development and regain its fiscal footing, Chicago should encourage further private development by making it easier to start new projects, housing and businesses.

Private development is one of the city’s brightest opportunities for growth in upcoming years. Numerous projects are already in the pipeline, including a new Chicago Fire stadium, large expansions to the United Center and the potential development of Foundry Park in the Lincoln Park neighborhood. These developments are projected to provide the city with over $250 million in annual tax revenue, create over 17,000 permanent jobs and spur additional housing construction and retail opportunities. For example, the Foundry Park project is expected to include thousands of new residential areas, and the United Center will spur multiple hotel and retail possibilities.

To capitalize on this progress and enhance Chicago’s competitiveness, Chicago needs to implement reforms to reduce regulatory barriers deterring private development. For example, the city should simplify zoning regulations. Currently, two-thirds of Chicago land does not allow development of non-single-family residences, and local fees and restrictions, such as affordability requirements, increase development costs. Simplifying these requirements would provide developers with more comprehensive and affordable options, increasing housing and commercial spaces that feed into local tax revenue.

Lengthy building permitting delays also add costs and slow projects that could spur more jobs and economic growth in Chicago. Aldermanic prerogative compounds this issue by adding unnecessary complexity and uncertainty to new development. By cutting red tape and making it easier to obtain a building permit, such as automatically approving permits after 60 days, Chicago can lower costs and speed up development.

Lastly, Chicago needs to advance measures to support a robust pipeline of skilled talent, which helps meet industry needs and drive economic growth. To connect residents with opportunities, the city should work closely with industry leaders to define joint goals, create clear avenues for career advancement and ensure training programs prepare workers with needed skills, especially in the growing health care and technology fields.

One way Chicago can close its skills gaps is to develop and scale well-structured education and training options, with coordination from community colleges, community-based organizations and existing workforce development programs. This includes expanding apprenticeships and job-training programs.

Fiscal stability, a pro-growth tax climate, regulatory reform and workforce development can provide Chicago with a long-term economic growth model that outpaces inflation and expands opportunities.

2. Responsible expenditure growth

Chicago already has some of the highest sales and property tax rates in the nation. This hostile tax climate has prompted residents and businesses to flee. As Chicago’s tax base shrinks, its fiscal problems grow.

One way to ensure the Chicago budget grows responsibly is to adopt a spending cap, so it cannot increase faster than a set rate. The most sensible spending cap for Chicago is linking it to the 10-year average inflationary growth, which helps avoid economic shocks that can spike or shrink single-year inflation. It provides a more stable and predictable idea of what prices will look like, so the city can plan.

During the past decade, prices rose about 3% annually. Yet, Chicago’s year-over-year budget growth has averaged 5.1% since 2015. And from 2019, it accelerated to 7.2%. The city’s corporate fund spending has grown nearly twice as fast as inflation in the past six years.

If Chicago had adopted a spending cap in 2019 linked to the 10-year average urban inflationary growth for all expenditures excluding pensions, the city would have saved nearly $3.45 billion. That includes over $600 million just in fiscal year 2025. The city could have improved essential services, provided relief for taxpayers and strengthened its reserves for future downturns.

Corporate fund spending is expected to rise by $621.9 million in 2026 and another $972.8 million by 2028. With a spending cap linked to inflation on all non-pension corporate fund expenditures, Chicago could save $510 million in 2026 and $2.35 billion across three years.

The top drivers of projected corporate fund growth are contractual and personnel expenses. Aligning growth in these costs with 10-year average inflation rates will be crucial for sustainable budgeting.

In its midyear budget review, Chicago realized $39 million in savings through adjustments to vendor contracts via competitive bidding, performance audits and pricing renegotiations. Building this momentum could further reduce the city’s largest recurring costs without raising taxes.

To reduce personnel costs, the city must also address, upon expiration, its lucrative collective bargaining agreements with the city’s unions, which cover over 95% of the city’s workforce. Several of the city’s major union contracts are set to expire in 2027.

Many of these agreements contain cost-of-living adjustments that outpace the urban inflationary index. In fact, urban inflationary rates have stayed under 3% in seven of the past 10 years.

The city must renegotiate agreements upon expiration, ensuring total compensation, including wages, health care and workers’ compensation, does not grow faster than inflation.

Lastly, salaries for some city employees are higher than the city can afford. For example, 1,424 Chicago employees make over $150,000 per year as of August 2025, costing the city nearly $240 million in wages alone. For these high-paying roles, the city should consider freezing cost-of-living adjustments. This should start with the mayor’s office, where over 60% of active, full-time employees make more than $100,000 annually.

3. Create more cost savings to offset recent expenditure increases

Simply capping future growth will not be enough to close the city’s deficit. From 2015 to 2019, Chicago’s non-pension corporate fund spending grew  by only 8%.  After 2020, an influx of federal pandemic relief, intended as temporary support, was used to justify permanent budget expansion. As a result, these expenses have grown 31% since 2019.

In 2026, Chicago is projected to spend an extra $2.6 billion beyond its 2019 levels. As the last of its federal funds are spent, Chicago must reverse many post-pandemic increases.

To do that, the city must identify at least $550 million in expenditure savings for 2026, about one-fifth of the projected spending increase from 2019 to 2026. This reset would restore discipline and provide a new baseline, aligning costs to pre-pandemic growth that taxpayers can reasonably afford.

The city can look at Johnson’s recent budget task force report for some ideas. The report found up to $455.5 million in potential cost savings. These include:

• Up to $52 million from potential changes to employee health care contributions, including limiting salary caps or surcharges.
• $25 million from streamlining hiring, including accelerating hiring of revenue-generating roles.
• Up to $69.5 million through a 20% reduction in overtime spending through better management of staff resources.

Chicago also needs a comprehensive audit of programs, staffing and contract costs. Before launching new programs, the city must rigorously evaluate their costs, effectiveness and value to Chicagoans.

Chicago should also seek to create a city charter, a binding document that defines a governance framework, budget process and oversight responsibilities. Chicago is the only major city that operates without a charter, giving the mayor disproportionate power over the budget.

It could set clear rules and sufficient timelines for reviewing city expenses, allow for greater collaboration between city departments to craft and approve budgets, and ensure year-round transparency of both short- and long-term revenues and expenditures.

4. Eliminate wasteful vacancies, fill critical roles

Chicago accounts for thousands of full-time equivalent positions in its annual budget. To maintain transparency and accountability, the city should budget only for roles it intends to fill in the near term.

In 2025, Chicago cut 744 full-time vacant positions, helping deliver $247.6 million in “operational efficiencies.” Despite this cut, 3,848 jobs across the total budget remain unfilled as of July, including 2,081 supported by the corporate fund.

Persistent vacancies may indicate structural overbudgeting or outdated staffing assumptions. If the city cut half of its vacant positions, it would save approximately $105 million.

At the same time, the city should ensure vacancies for critical roles are filled. This is especially true for the Chicago Police Department. Figures from the Chicago Office of Inspector General show there are 11,606 sworn CPD members as of June 2025, down nearly 1,750 from peak employment in early 2019.

The department carries over half of the corporate fund vacancies at 1,103 as of June 2025.  Chicago Police Department vacancies force costly overtime, totaling $278.3 million in 2024. Restoring staffing can reduce personnel strain, control overtime costs and improve public safety.

Addressing vacancies in a targeted, performance-based way is essential to making Chicago’s government more efficient, transparent and sustainable.

5. Pension reform

Pensions are the leading driver of Chicago’s rising expenditures in the overall budget. During the past six years, pension contributions have more than doubled from about $1.4 billion to about $2.9 billion. They take nearly 24% of the city’s net appropriations. These costs eat funds for other departments and projects that Chicagoans expect and value, as well as drive budget deficits.

The recent pension sweetener signed by Illinois Gov. J.B. Pritzker, and largely neglected by Johnson despite clear warning signs, will hike Chicago’s pension costs by $11.1 billion in total liabilities by 2055. The change leaves Chicago’s funds “technically insolvent,” city Chief Financial Officer Jill Jaworski said.

As government pension costs rise, Chicago taxpayers get stuck with the bill. Property taxes, already among the highest in the nation and the city’s largest revenue source, have risen by nearly $500 million since 2019, with almost 80% of levies dedicated towards pension payments. It hasn’t been enough, so city leaders have been tapping the corporate fund.

Pension contributions from the corporate fund have increased from $131 million to over $943 million. Still, all four of the pension systems the city funds rank among the worst-funded local pension systems in the country.

To combat this, Johnson has made advance payments into the system, adding $260 million to the corporate fund in 2024. Overall, the city paid a total of $2.8 billion toward pensions in 2024, but was still short $440 million of what actuaries determined was needed to pay down Chicago’s debt.

High taxes are now the top reason families and businesses are leaving Chicago, contributing to population loss and a shrinking tax base. Last year, all 50 aldermen voted “no” on Johnson’s plan to increase property taxes by $300 million and voters rejected his “mansion tax” proposal to raise taxes on properties selling for over $1 million by at least 2%, hitting  mainly small businesses and relatively few “mansions.”

Achieving pension reform will require a constitutional amendment. Only then can the state adopt responsible changes, such as setting a maximum salary that increases a pension, replacing compounding increases with true cost-of-living increases and adjusting benefits to align with inflation. A previous analysis found similar reforms would have saved Illinois more than  $50 billion by 2045, with a significant share accruing to Chicago’s systems.

Because Chicago plays a major role in state politics, its representatives carry the influence to drive action from the Illinois General Assembly. To help undo the damage to Chicago created by signing House Bill 3657, Pritzker should champion putting a constitutional amendment before voters that opens the door to meaningful pension reform.

Barring a constitutional amendment, to control future not-yet-earned benefits, the city can take interim steps. One proven model comes from Illinois itself. In 2018, former state Rep. Mark Batinick, R-Plainfield, introduced a pension buyback system. This offered enrolled persons in the state’s Teacher’s Retirement System, State Employees Retirement System and State Universities Retirement System two options:

• A 60% buyout of their total lifetime benefit in exchange for forfeiting future pension payments.
• A 70% buyout of the difference between a 3% compounded cost-of-living adjustment and a 1.5% simple cost-of-living adjustment.

Pritzker stated this system saved taxpayers money “for decades to come,” with estimates of $1.8 billion in savings in 2023 alone. Tailoring a similar plan for Chicago’s four main pension systems could be a path to flatten future liabilities. The city can use existing advanced contributions to cover a part of the cost.

6. Secure immediate revenue through CPS accountability, non-tax revenue

As federal pandemic-relief funds dry up, Chicago projects nearly $300 million less in local non-tax revenue. This shortfall comes primarily from the elimination of one-time resources used last year, license and permit fees bringing in less and uncertainty around whether Chicago Public Schools’ will pay back its promised $175 million for city pension contributions. To avoid painful cuts that can hurt city services, Chicago should recoup some of these losses and implement policies to foster an environment where private business and investment can thrive, generating jobs and economic growth.

First, Chicago should put more pressure on CPS to make its $175 million payment toward the Municipal Employees’, Officers’ and Officials’ Annuity and Benefits Fund. The fund covers pensions for most civil service employees, including non-teacher employees of CPS. Currently, CPS employees make up about 62.7% of active members in the fund and are responsible for about 45% of its “normal costs,” benefits earned in a given year. In 2022, this amounted to $259.4 million in statutory contributions.

Even with the city making a $1.13 billion payment into the fund in 2025, it still remains the second-worst funded local pension plan in the nation. Rising costs have been driven in part by CPS’ massive increase in non-teaching staff. In just five years, CPS added 5,641 non-teaching positions, despite an enrollment drop of nearly 30,000 students, saddling the city with a higher pension bill.

CPS is supposed to pay $175 million annually toward these pension costs, but the district has withheld payments during the past two years, leading to shortfalls in Chicago’s budget and forcing the city to tap into federal funds to cover the deficits. The 2026 payment is in doubt, with CPS facing its own deficit driven by an expensive contract with the Chicago Teachers Union.

The city should pursue a stronger, legally enforceable agreement with CPS, which may require changes in state law.

Second, Chicago should also pursue new ways of collecting revenues that don’t rely on taxes, such as allowing commercial advertisements on city streetlights and utility poles. This could create up to $14.4 million in new revenue for the city.

Conclusion

For too long, overspending has driven the city into perpetual fiscal crisis. Each time, city leaders tell Chicagoans that deficits and tax hikes are unavoidable.

To restore financial stability and win back employer and investor confidence, City Hall must choose to control spending to bring down costs. It must grow the tax base, not by raising rates, but by fostering private investment and economic expansion.

Only then can Chicago shift from deepening crisis to lasting prosperity.