CHICAGO (Reuters) – Chicago faces an $838 million deficit in its upcoming budget, the largest in the city’s recent history, due to growing costs for personnel, pensions and debt, Mayor Lori Lightfoot announced on Thursday.
FILE PHOTO: Lori Lightfoot speaks after being sworn in as Chicago’s 56th mayor by Judge Susan E. Cox during an inauguration ceremony at Wintrust Arena in Chicago, Illinois, U.S. May 20, 2019. REUTERS/Kamil Krzaczynski/File Photo
In a state of the city speech, Lightfoot, who took office in May, warned of “hard choices” ahead for the nation’s third-largest city.
“We walked into a staggeringly large deficit for next year and what was worse we were not left with any credible plan on how to fix this massive problem,” she said, noting that actions by her office trimmed the gap from an initial $1 billion.
A chronic budget deficit along with a big unfunded pension liability have led to low credit ratings and high borrowing costs.
The projected shortfall for fiscal 2020, which begins Jan. 1, is the city’s biggest since at least 2001, surpassing 2011’s $654.7 million gap.
Lightfoot said she rejected a proposal by her predecessor, Mayor Rahm Emanuel, to sell $10 billion of bonds to boost pension funding and amend protections for public sector worker retirement benefits in the Illinois Constitution.
But the new mayor, who will unveil her first budget in October, was light on details for her own plan. She mentioned replacing “high-cost” debt to save $100 million, as well as a hiring freeze, and a crackdown on overtime. Lightfoot said she was committed to a graduated real estate transfer tax that would raise more money from higher-priced homes and having a robust cannabis industry in the city after Illinois legalized recreational marijuana.
She also made it clear that Chicago will need help from the state.
Legislative changes are already being sought to a new Illinois gaming law that authorized Chicago’s first casino, which would generate revenue earmarked for the city’s underfunded police and fire fighter pensions. An analysis released this month found the law’s high fee and tax structure would make the project financially unfeasible.
“Getting it right represents a win for both the city and our state, and there is no reason we can’t arrive at a solution,” the mayor said, adding that otherwise the city will be forced to make “painful” revenue choices.
The mayor’s financial analysis showed $3.83 billion in projected fiscal 2020 corporate fund revenue versus $4.67 billion in spending. It also indicated the fiscal 2021 gap could top $1.1 billion.
Reporting by Karen Pierog; Editing by Lisa Shumaker