Federal Bailouts Won’t Save Lightfoot’s Sinking Chicago

US
Chicago Mayor Lori Lightfoot speaks at the U.S. Conference of Mayors 88th Winter Meeting in Washington, D.C., January 23, 2020. (Joshua Roberts/Reuters)
Chicago is adding to its deficit even as it receives a federal bailout.

Finances are so shaky in Chicago that, even with an infusion of $3.5 billion in federal aid, Mayor Lori Lightfoot included a $76.5 million property-tax hike in her new budget plan. That tax hike would raise residential-property-tax bills by an average of $72 to $180, depending on the region of the city.

Chicago’s business community directly pushed back on the mayor’s approach. “With the historic level of federal funding coming to the city we can avoid a property-tax increase that impacts all residents and businesses,” the Chicagoland Chamber of Commerce responded. They’re right, but reformers face an uphill battle to convince the mayor and city council to protect already overburdened homeowners and businesses.

Can anything be done to save the financial future of one of America’s largest and best cities?

In fact, a quick glance at the city’s budget makes the solution obvious: pension reform.  But that requires lawmakers in the state capitol to give voters the chance to vote on a constitutional amendment to unlock the state’s unyielding pension clause. So far, they’ve lacked the courage to tell Illinois’ politically dominant government unions it needs to be done.

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Let’s go through the numbers.

The business community is right that a property-tax increase is unnecessary considering the $3.5 billion in pandemic-related federal aid. Lightfoot’s proposed budget uses $782 million in federal funds to replace 2021 revenues, $385 million for 2022, and reserves just over $152 million for 2023 revenue replacement.

That leaves roughly $581 million in flexible aid currently dedicated to new program spending. The property-tax hike could be prevented by using just 2.5 percent of Chicago’s $1.9 billion in American Rescue Plan funding.

But instead of using the aid to prevent tax hikes that would impede Chicago’s economic recovery, the city has proposed to use those billions to create new programs. The mayor’s proposed budget increases spending by roughly $1.2 billion on a range of city services including the Chicago Police Department, affordable housing, and mental-health services, and a pilot program for a universal basic income. Unfortunately, that spending is propped up by one-time federal aid that expires by 2024 — meaning many programs will have to be cut or financed with significant tax hikes within just two years.

And about those pensions: Pension costs will consume more than $2.3 billion of the city’s budget, or 21.4 percent of its own source revenue, excluding state and federal grants. That’s more than a $967 million increase in pension spending since Lightfoot became mayor and $461 million more than last year alone, a spike that accounts for 63 percent of the $733 million 2022 budget deficit reported by Lightfoot in August.

Chicago’s rapid and unsustainable growth in pension spending can only be slowed through benefit reforms.

If Lightfoot wants to live up to the rhetoric in her budget address — in which she promised to invest in Chicago’s economic recovery while giving predictability and stability to taxpayers — she needs to develop and execute a plan to match long-term revenues and expenses. Only a long-term balanced budget can give city residents confidence that programs will continue and taxes will remain affordable, and only a pension amendment can deliver balance.

Solving the pension crisis will require amending the Illinois constitution to adjust the future growth in pension benefits for current workers and retirees. This is the only way to right the ship in Chicago. And as one of the state’s most prominent elected Democrats, Lightfoot has a duty to use her platform to push state lawmakers for change that will protect city residents.

To date, she’s called the pension crisis “unsustainable” and the city’s “biggest problem” but has never endorsed a pension amendment, the only available option to fix it.

The good news for the city is that the budget has not yet been finalized: There is still time to cancel tax hikes that will put Chicago’s economy even further behind other major cities. Chicago has an opportunity to enter 2022 on better economic footing than 2021.

Americans across the nation have contributed to bailouts for the city. It’s time to be good stewards and use those funds to help Chicago’s recovery. For the next few years, federal aid makes that relatively easier to do. Lightfoot should use that breathing room to become the state’s biggest advocate for pension reform, before aid dries up in 2024.

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