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Mayor Lightfoot Releases 2022 Preliminary Budget

By Mary Kay Minaghan, MKM Services

Mayor Lori Lightfoot released her 2022 preliminary budget for the City of Chicago. In the corporate fund, revenues for 2022 are projected to be $4,217.3 million and expenditures are projected to be $4,950.4 million, leaving a deficit of $733 million.

Corporate Fund

Corporate Fund revenues in 2022 are projected to increase $179.7 million or 4.4 percent more than 2021.  This includes $227.6 million or 14.9 percent increase in local tax revenues over 2021 as Chicago’s economy continues to recover.  The Revenues that were slower to recover are expected to accelerate recovery in 2022, including recreation taxes such as the amusement tax, which is projected to increase $50.4 million or 22.5 percent over the 2021 budget.  Similarly, an increase in business taxes, which includes hotel taxes are expected to increase $40.5 million or 61.3 percent next year.  Transportation taxes are expected to increase 8.1 percent or $25 million over the 2021 budget.  The preliminary budget also projects an increase in intergovernmental revenue of $113.6 million or 27.4 percent.  in 2022 non-tax revenues, which includes fines, forfeitures and penalties is projected to decrease by $78.7 million or 5.8 percent from the 2021 budget.  Proceeds and Transfers are projected to decline from the 2021 budget by $13.9 million or 2.3 percent.

Corporate Fund expenditure in 2022 are anticipated to increase by $912.8 million over the 2021 budget.  This increase is driven largely by personnel, pension and debt costs facing the City.  The increases in personnel costs totaling more than $180.8 million are the result of contractual wage and prevailing wage rate increases along with cost of living adjustments for city employees.  This will bring the total personnel costs to $3,146.8 million or roughly 80 percent of the total budget.  In addition, the City is expected to ratify a contract with the Chicago police union at a cost of $377.6 million.  The 2021 budget included $103.3 million for an increase resulting from the settlement of a police contract.  However, that leaves the City $274.3 million short.  The Mayor is proposing to cover a majority of this added cost with savings expected from refinancing bonds at a much lower interest rate.

Property Taxes

Last year, the City raised its 2021 property tax levy by $93.9 million to $1,632.9 million.  This represented a little more than a 6 percent increase in the total levy.  At the same time, they also approved an ordinance to annually raise the property tax levy by the annual consumer price index (CPI).  This year’s annual CPI is not yet available, but it could reach 2 percent.   As a result of this ordinance, without any additional City Council action, the City’s property tax levy will increase to an estimated $1,665,558,000 in 2022.  While the City’s property tax levy used to cover the City’s day to day operating expenses, for more than 10 years the entire property tax levy has been used to pay pension costs and debt service.  With lower than ever interest rates it is expected that the 2022 budget will include refinancing proposals to cover a significant portion of the projected $733 million deficit.  However, with such a sizeable deficit, a property tax increase above the already established annual CPI increase cannot be ruled out.

Pensions and Debt Service

City workers are covered under four defined benefit plans approved by the Illinois General Assembly.  Additionally, the Illinois Constitution prohibits reducing pension benefits.  The City will make pension payments to all four of its pension funds based on an actuarially-calculated contribution for the first time in 2022.  This will result in a $253.9 million increase to the Corporate Fund.  This will bring the pension cost in 2022 to $3,146.8 million.  In 2023 the projected cost of pensions will be $3,224.1 million and in 2024 it will reach $3,303.6 million.  Chicago’s cost of debt service also continues to rise.  In 2022, the projected long-term debt will total $24,725.6 million.  In 2023 long-term debt is expected to be $23,882.2 million and in 2024 it is projected to be $22,970.7 million.  In 2022 the projected payment on this debt service will be $1,947.8 million.  In 2023 this cost is expected to reach $2,080.6 million and in 2024 it is projected to increase to $2,101.1 million or more than half of the City’s total budget.

American Rescue Plan

In March of this year, the United States Congress passed the American Rescue Plan (ARP), which provided $782.2 million to Chicago.  These funds are restricted but do permit the City to use these funds to cover revenue losses due to COVID-19.  As part of the 2021 budget, the City Council authorized $500 million refinancing to cover the revenues the City projected it would lose in 2021.  To address the projected $798.8 million in lost revenue in the 2020 budget, the City approved short-term borrowing in the amount of $450 million that must be repaid in 2021.  The Mayor is prosing to cancel the $500 million refinancing and utilize the entire $782.2 million in ARP funds to pay for operating expenses.  The danger of this move is that it applies one-time revenues, the ARP funds, to what are ongoing and growing city expenditures.

2022 Budget Schedule

Mayor Lightfoot plans to introduce her 2022 budget in mid-September, a full month earlier than is customary.  This is likely due to the fact that she is proposing to utilize all of the ARP money to pay for operating expenses.  Many Aldermen would prefer to use the ARP funds to help stimulate the economy, including grants for small businesses, housing assistance and guaranteed income for low income people.  Wrapping the ARP money into the 2022 budget would limit the City Council’s ability to propose alternative ways to spend the ARP money.  However, it will take more time to secure the necessary votes for the 2022 budget, hence the earlier introduction date.