* 8/15/26 - A City That Works - How the next mayor should think about our fiscal challenges................................
Buzz Sawyer
What that long-term strategy should include
How the next mayor should think about our fiscal challengesPart 2 of our recurring series on big issues in the 2027 mayoral election
First, a few upcoming events to flag:
Others to remember: Big Tent Urbanist Party on August 13, Keep Families in the City on August 16, and A Conversation With Ald. Bennett Lawson on August 19. In recent years, the City of Chicago’s budget has gotten increasingly difficult to get across the finish line. Our annual budget gap - the projected budget deficit that the City has to close each budget season - has grown from around $128 million in FY2023 to over $1.1 billion last year. And despite some reforms last year, gaps are projected to remain quite large. The city’s Financial Future Task Force projected a gap of nearly $700 million this year and gaps between $680 and $780 million in future years. Meanwhile, City Council has become an increasingly outspoken voice during budget season. After providing significant pushback during the fall 2024 budget season, last year they took things fully into their own hands by passing a budget of their own. Leading this process is an unenviable position to be in. Yet that is the position that whoever wins next year’s mayoral election will find themselves in. This is the second post in our series on the issues that ought to shape the 2027 mayoral race (pensions was first). Chicago’s fiscal position is fraught, and the budget cycle seems more challenging than ever - but figuring out how to deal with our fiscal reality must be at the forefront of any mayor’s agenda. Some budget basicsFirst, a brief overview of how the city budget works: last year, the City of Chicago had a total budget of around $16.6 billion, with $12.7 billion in our operating budget (excluding grant funds). Much of that, however, consists of spending that is fairly set in stone. Pension payments and debt service, for example, now combine to make up about 40% of the city’s operating budget. Our city enterprise funds (water, sewers, and the two airports) also make up a significant portion of the overall budget but are standalone self-funded entities. The remaining piece is our Corporate Fund, which was around $6 billion last year. This is the City’s general operating fund, and is where we spend money on the stuff you probably think about most often in terms of “what the city does.” This is also the portion that’s really up for debate each year and gets negotiated during budget season. When there’s a shortfall in revenue, it’s the fund where the cuts (or new taxes and fees) need to come from, and when there’s a surplus it’s where the City can allocate funds for new investments or projects. And as I referenced earlier, those shortfalls have become increasingly common in recent years. This year’s gap is expected to be somewhere around $680 million before changes to the budget take place. You could get fairly granular at mapping out the causes of these recurring deficits, but ultimately they boil down to the fact that increases in our spending¹ typically outpace our revenues². Even in the Corporate Fund, room to maneuver is not always huge. I think it’s worth noting that in last year’s budget, when Council passed their own proposal over the mayor’s objections, the final alternate budget that passed changed only 1.6% of total spending - a few hundred million dollars - compared to the mayor’s original proposal. Over 98% of the budget wasn’t in dispute even when fighting was at its fiercest in recent memory. The case for a long-term strategyPerhaps the most frustrating part of our budget challenges is in the seeming lack of long-term planning at solving the problem. Each year, we seem to reach for a new hodgepodge of additional taxes, fines and fees to bring in a bit more revenue. We find a new smattering of operational efficiencies we can come up with to reduce our spending. Then when we’re still not there, we use one-time solutions like pulling in increasingly larger TIF surpluses or taking on more debt to fund operational expenses. What we’re not doing often enough is enacting solutions which can compound year over year, like indexing those taxes and fees (and yes, even our property tax levy) to inflation, so they’ll increase slowly over time and keep better pace with our expenses, instead of ratcheting upwards every few years. And in recent cycles, this challenge has become particularly difficult as tensions between City Council and the mayor’s office escalated into Council passing an alternate budget of their own. It’s difficult to enact meaningful reforms when those reforms aren’t led by the administration responsible for enacting them, or when those voting to pass them have to worry about the threat of a veto preventing reforms the mayor doesn’t like. But I am skeptical that City Council will be willing to revert to a more passive voice in future administrations, even if future mayors have less contentious relationships with Council. Candidates for mayor need to think about how they intend to work *with* City Council to craft a budget that fixes our fiscal challenges, rather than just butting heads and seeing who can get to 26 votes first. What that long-term strategy should includeIt’s worth thinking through what that long-term strategy ought to include, too. An easy one for starters: more of our revenue sources need to be indexed to inflation going forward. Under Mayor Lightfoot, for example, the city increased its property tax levy each year to keep up with inflation. Those small-but-predictable increases ought to be a lot easier for taxpayers to deal with than seeing a dramatic tax hike every few years when we’re forced to raise the levy more significantly. And away from property taxes, my back-of-the-envelope math estimated that indexing other fees and fines referenced by the Financial Task Force - like recycling fines, food inspection fees, or the bottled water tax - would bring in around $17 to $18 million per year for the city. That won’t close the gap on its own, but it helps stop the gap from compounding each cycle for no reason other than nobody wanting to have yet another fight about which fees to hike this year. Some larger revenue ideas are worth exploring as well. The online sports wagering tax the city passed last year, for example, has performed exceptionally well, and it would probably behoove us to think about expanding to whatever level would maximize revenue for the city. Secondly, while I’m not a fan of pulling money out of TIF surpluses every year, I do think we need to take a harder look at fully sunsetting those TIF districts which are no longer necessary to stimulate economic development. Doing so would increase our property tax levy without raising rates on homeowners. I’ve also been an advocate before of hiking our garbage fee, which currently brings in around $60 million in revenue for the city but covers less than one-fifth of what it actually costs for the city to collect our trash. Garbage collection is one of the most straightforward fee-for-service type things that the city does, and having a fee that more adequately reflects the cost of collection seems like a straightforward good idea (and one that can be done in a way to protect low-income residents, as we do with water and sewer bills). We also need to do a better job adopting sustainable reforms that groups like the Financial Future Task Force and EY come up with, rather than shelving or slow-walking their ideas. Last year, for example, the Task Force’s interim report and EY jointly identified somewhere in the neighborhood of $90 to $120 million in efficiencies that the city could act on immediately - including domains like fleet management, debt collection modernization, and tax auditor staffing - plus another $100 to $200 million in longer-term savings from things like technology modernization and City-County functional consolidation. Implementation hasn’t kept pace with the ambition. Take fleet management, for instance - identified savings were in the ballpark of $13 to $28 million, but last year’s budget only contemplated $3 million of it. That’s not nothing, but it’s not what we need. To be fair, we are making some progress - the estimated fiscal gap for this year of around $680 million is meaningfully smaller than last year’s $1.1 billion, and that’s presumably through some of these reforms. But “better than it was” isn’t the same as “as good as it can be,” and there’s no real mechanism ensuring that reforms adopted survive contact with the next budget cycle. What the next mayor needs to be thinking aboutWith all that in mind, here are the main things I think candidates for mayor need to be considering:
The overall requirement here is difficult, though straightforward. To solve our fiscal challenges, future administrations need a sustained commitment towards long-term fiscal reforms, dealing with partners in labor to reduce our largest spending costs, and creating the economic growth that will make our budget math easier. Candidates for mayor need to show they have a plan to do that. A City That Works is a reader-supported publication. To receive new posts and support our work, consider becoming a free or paid subscriber. 1 Much of which is contractual, like pension obligations, debt repayment schedules, or contractually-agreed upon employee compensation, and increase automatically over time 2 Many of which are fixed dollar amounts - like our pension levy, or many of our fines and fees - instead of being indexed to inflation or having any other ramp over time You're currently a free subscriber to A City That Works. For the full experience, upgrade your subscription.
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