Chicago Mayor Lori Lightfoot will deliver a State of the City address Aug. 29 to lay out the fiscal challenges the city faces in 2020 and ideas under consideration for tackling them.
The speech will come in tandem with the release of the city’s annual budget forecast.
Lightfoot will outline the city’s existing long-term liabilities and future fiscal needs as well as potential fixes during the prime-time speech. The city is grappling with the need to come up with more than $700 million in revenue to cover rising personnel, pension, and debt costs and also faces a structural deficit that could push the gap up to $1 billion.
The city is saddled with $30.1 billion of net unfunded pension liabilities and contributions are rising as the city shifts to actuarially based payments. The city also faces rising debt service as it previously shed scoop-and-toss debt restructuring and must fund public safety raises still being negotiated.
“As we work to build a city government that drives growth and opportunity for all of its residents and neighborhoods, we must ensure we have a road map to a sustainable financial future,” Lightfoot said in a statement Friday announcing more details on the timing and details of what her address will include.
The state of the city address will be broadcast and live-streamed from Harold Washington Library at 6 p.m. The speech is also slated to be carried on all major local TV and radio newscasts with the city of Chicago providing a live-stream feed from its website and social media channels.
The city will release in tandem with the speech its 2020 budget forecast. It will include similar information to what was previously labeled the annual financial analysis by former Mayor Rahm Emanuel’s administration. His team expanded the information released by the prior administration of Richard M. Daley in what was then known as the preliminary budget. Emanuel did not a seek a third term this year and Lightfoot won her first elected post in a May runoff, taking office May 20.
The numbers were traditionally released by the end of July. Lightfoot recently announced the signing of an order pushing the date back by a month to the end of August.
“The 2020 Budget Forecast will include an historical picture of the city’s finances, current costs and obligations and future cost projections that allow the city to plan and budget efficiently. The release of this document will serve as an important tool as the City works to remain open and transparent about the future challenges faced in 2020,” reads the Friday statement.
The timing lays the ground work for the city’s upcoming annual investors’ conference that chief financial officer Jennie Huang Bennett previously announced was slated for Sept. 20.
Market participants are watching closely to see how Lightfoot proceeds in hopes that the city doesn’t backslide on progress made in chipping away at a structural gap and in raising pension funding which was achieved with steep higher taxes sought by Emanuel.
One-time measures like pushing out the funding schedule to reach a 90% funded ratio would be viewed negatively and could drive negative rating action. Emanuel proposed a $10 billion pension borrowing that drew widespread critics, including Lightfoot, but market sources say some form of pension borrowing may still be on the table. Bennett has declined to say what the city is considering and has not ruled out any ideas.
Lightfoot has said she’s looking at long-term fixes.
Lightfoot will also take her case to the neighborhoods in four town halls slated for September. “As the Budget Office works closely with city departments to identify their operational needs and service investments for the coming year, we also want to hear from residents, elected officials and other key stakeholders as we develop strategies for addressing our fiscal challenges,” city budget director Susie Park said in the statement.
The city is first working to chip away at costs – that includes $22 million in savings by shedding short-term credit lines -- before announcing new or higher taxes and fees although Lightfoot has warned they are needed as part of any fix.
Lightfoot has offered some hints including a new tax on professional services performed at law and accounting firms as well as raising the city’s real estate transfer tax on property sales. Some tax ideas would require state approval and Lightfoot also is asking lawmakers to go back to the drawing board on legislation that approved a Chicago-based casino because the tax structure is too onerous to attract a developer and financing. Lawmakers will meet for their annual veto session in October.
The city’s GO bonds are rated at BBB-minus by Fitch Ratings, A by Kroll Bond Rating Agency, junk-level Ba1 by Moody’s Investors Service, and BBB-plus by S&P Global Ratings. All assign a stable outlook.
