Chicago faces $982 million budget shortfall for 2025, Mayor Brandon Johnson says
CHICAGO (CBS) -- Mayor Brandon Johnson is projecting a $982 million city budget shortfall for 2025, nearly double the spending gap he faced in his first year in office, thanks to rising personnel costs, drops in some key tax revenues, and expiring one-time budget solutions he relied on to balance the 2024 budget.
"The size of the budget gap is significant. It's going to require decisions that will speak to our overall collective desire to build an economy that works for working people. There will be sacrifices that will be made," Johnson told reporters of the city's budget forecast Wednesday afternoon.
While plugging a $982 million budget gap could prove daunting, it's not the biggest shortfall the city has faced in recent years. Former Mayor Lori Lightfoot faced a projected $1.2 billion shortfall for 2021 after the COVID-19 pandemic decimated the city's finances. However, Johnson won't be able to rely on an influx of federal stimulus funding to help balance the budget like his predecessor, former Mayor Lori Lightfoot, was able to do during the pandemic.
Last year, Johnson plugged a $538 million budget gap for 2024 without layoffs or tax increases, but relied a great deal on one-time financial fixes, including declaring a surplus of tax increment financing funds, and rolling over a $50 million budget surplus from 2023.
Johnson declined to say if he would raise property taxes, authorize legalizing video gambling in Chicago, or approve placing slot machines at the city's airports as ways to raise new revenue to balance the budget for 2025. He also would not rule out the possibility of layoffs or a hiring freeze.
"There are a number of options that we'll explore. What we're working to safeguard against is harm to constituents, to everyday people," he said. "We're working to provide as soft of a landing as possible."
Mayor and City Council face tough choices when coming up with a balanced budget plan
Ald. Jason Ervin (28th), who chairs the City Council Budget Committee, said the projected budget shortfall is lower than he expected.
Nonetheless, Ervin acknowledged the mayor and City Council will face tough choices when it comes to cutting spending or raising new revenue to balance the budget.
"I think we have to look at everything, but at the same time we have to be reasonable so that we're not impacting those that have generally been most harmed by taxes and fees throughout the history of our city. But, again, I think we start on the expense side of paring that down before looking at revenue," Ervin said.
Government spending experts said they knew the city's projected 2025 budget shortfall would be big, and with a number this large, there have to be both cuts in spending and an increase in revenue coming in.
"The chickens have come home to roost. It is time to get busy," said Joe Ferguson, president of the Civic Federation, a nonpartisan public finance watchdog group.
With some of the budget fixes Johnson relied on last year no longer available to balance next year's budget, experts said he needs to make structural changes.
"There's not a silver bullet here. There is not a one size takes care of everything in all situation. We have to open up the budget itself in ways that we haven't done for many years," Ferguson said.
David Greising, president and CEO of the Better Government Association, said it was notable Johnson acknowledged sacrifices will be made.
"Which is entirely appropriate in this kind of circumstance; the question is who will have to sacrifice what in order to make this budget," Greising said. "It's clear that there needs to be some structural change in revenue, as well as a more aggressive approach to cost cutting."
Ferguson suggested Johnson has the chance to leverage his union background to encourage the city's labor unions to help find cost-cutting measures in their own memberships.
"He is a brother in the union movement. That gives him standing like no other mayor that we have seen in our lifetime to be a convener of labor," Ferguson said.
Ervin said he'd like to see the mayor start with spending cuts, but said the city also needs to find new streams of revenue, such as expanding the sales tax to service.
"Our economy has shifted to goods and services, and in other states, they tax those services such as dry cleaning and things of that nature," Ervin said.
Ferguson noted such a move would require approval from the Illinois General Assembly in Springfield, and even then could take two to three years to implement.
"Springfield is not coming to the aid of the city anytime soon. Springfield has its own issues that it has to deal with. Springfield also needs to see that the city is actually taking care of its own house before it's going to come with any additional help," Ferguson said.
As chair of the Budget Committee, Ervin will oversee a series of public hearings with city department heads after the mayor presents his budget plan in October, so the City Council can delve into the details of Johnson's tax and spending plan for next year.
What's behind the $982 million budget shortfall?
In addition to rising costs for city employee salaries and pensions, the mayor's budget team pointed to dropping revenue from two key tax sources as key factors in the $982 million projected shortfall for next year.
Budget Director Annette Guzman said the city is expecting continued drop in revenue from the personal property replacement tax – a tax on corporations collected by the state and passed on to local governments. The city saw a drop of $169 million in revenue from that tax in 2024, and is expecting an even bigger drop in 2025.
The Chicago Board of Education also recently approved a Chicago Public Schools budget plan that does not include a $175 million payment for pensions for nonteaching staff at the district, a cost the city once covered, but that CPS had paid for over the last four years until now, and Johnson's budget team isn't expecting the district to cover that cost for 2025.
Another factor putting pressure on the city's budget for next year is ongoing contract talks with the union for the city's firefighters and paramedics, who have gone more than three years without a new contract.
The mayor's budget team remains in contract talks with Chicago Fire Fighters Union Local 2 on a deal that would provide firefighters and paramedics with raises and three years of back pay, but Johnson declined to go into specifics on how much they are expecting that will cost.
"Clearly there's going to be an increase. Our workforce, they deserve it," Johnson said.
While the mayor and his budget team would not yet reveal how they plan to balance the budget for 2025, Johnson said they want to minimize any potential cuts to city services.
"This budget gap presents us with a challenge, but it does certainly present us with an opportunity to transform the structure of our budget to ensure that, again, working people in this city can ultimately thrive," Johnson said.
The city's budget projections for next year include $150 million in spending to provide beds and other services to thousands of migrants staying in city-run shelters, but the mayor's budget team said the cost of the city's migrant mission is not a factor in the expected shortfall for 2025, noting the city has budgeted $220 million for migrants in 2024.
The mayor's budget team will begin holding meetings with various city departments next month to begin preparing Johnson's budget plan for 2025. He will present his spending plan to the City Council in mid-October. Johnson will need the support of at least 26 alderpersons to pass a budget plan by the end of the year, which could require him to accept some changes offered by City Council members during budget hearings.