Chicago staring at $306 million 2023 budget gap

Chicago has a $305.7 million gap to close next year as it works to meet a 2023 goal to structurally balance its books, according to preliminary estimates released by the city’s finance team Wednesday.

While Mayor Lori Lightfoot’s administration still needs to finalize estimates before formally releasing the annual budget forecast, the current estimate is down from the $867 million gap warned of in last summer’s forecast which lays out a picture of the city’s fiscal health over the next few years.

“That’s where we were before we closed the 2021 budget,” Budget Director Susie Park said during a subject matter hearing held Wednesday by the City’s Council’s Committee on Budget and Government Operations during which the finance team laid out its quarterly fiscal update. “Some of these numbers could change …. we will come out with the actual 2023 gap for the budget closer to August which is when we do our forecast.”

The fiscal picture for 2023 has improved because the city expects $240 million in additional revenues over budgeted levels when it formally closes the books on 2021, while expenses have mostly held steady.  

Additionally, the city held on to $152.4 million from its $1.9 billion of federal COVID-19 pandemic American Relief Plan Act funding for eligible expenses, while the city will reap $158.7 million of benefits from previously enacted structural changes to the budget.

The August budget forecast laid out both pessimistic and optimistic projections for the coming years that incorporated the potential damage future spikes in COVID-19 cases could inflict on the local economy, but it projected gaps even under the positive scenario.

Using a base outlook, an $867 million gap was forecast for 2023 and $848 million in 2024. Under a negative outlook, a $1.19 billion gap loomed in 2023 and $1.28 billion in 2024. Even in a positive scenario, gaps loomed of $514 million in 2023 and $391 million in 2024.

The $240 million positive balance for 2021 revenues stems from rosier collections of transaction taxes due to a hot real estate market and lease tax collections that totaled $201 million over budget.

Income taxes exceeded budget by $57.5 million due to an improving labor market while the personal property replacement tax on corporations is up by $171 million from budget. Lease, fine and rental taxes are down $55 million and transportation taxes are down $55 million.  

Park cautioned that some of the tax bumps are one-time in nature and can’t be depended up on to continue this year or into the next budget.

“We are pretty close on the expense side,” she said.

Lightfoot said at an April Chicago City Club appearance that revenues were up by at least $200 million for 2021 but did not say how that would impact planning for the next budget. The city wiped out a $700 million gap heading into the 2022 budget with federal aid, growing revenues, and expense savings in the $16.66 billion 2022 budget package. The city's budget year aligns with the calendar year.

The city will publish its annual financial statements for 2021 in late June or early July. The report will also include updated net pension liabilities. Park said it’s too early to point out trends on expenses and revenues this year.

The 2022 budget marked the first year all four city pension funds reached an actuarially based contribution from the city. The police and firefighters reached that milestone in the 2020 budget and the municipal and laborers reached it this year.

Despite increased contributions, the funds remain frail. The city’s collective net pension liabilities stood at $32.96 billion in the last actuarial reports and the funded ratios range from a low of 18.97% for the firefighters to a high of 44.42% for the laborers fund with the municipal fund at 22.96% and police at 22.21%.

Total contributions jumped to $2.28 billion in 2022 from $1.8 billion in 2021. Most is due to the jump to an ARC for municipal and laborers. Payments totaled just $1 billion in 2017, underscoring the rising burden being absorbed by the city under an overhaul approved under former Mayor Rahm Emanuel to move the funds to a 90% funded ratio between 2055 and 2058.

After 2020, increases taper off to $2.33 billion in 2023, $2.37 billion in 2024, $2.37 billion in 2024, $2.41 billion in 2025, and $2.45 billion in 2026.

Revenue from a proposed casino would go toward police and firefighters pension contributions under state legislation. The Lightfoot administration is pressing council members to act quickly to approve a Bally’s casino proposal to ensure some funding can be included in the 2023 budget.

Under the city’s proposed agreement that gives Bally’s Corporation the city’s first and only state approved license, Chicago would collect an upfront payment of $40 million up on signing the deal which must receive City Council approval before going to the Illinois Gaming Board for consideration.

In response to push back from some council members seeking more time to review the proposal, Chief Financial Officer Jennie Huang Bennett last week said the finance team needs to know the $40 million will be “in hand” before it releases the budget forecast over the summer and called the funds “critical" as the rating agencies expect the city to meet its 2023 target to achieve structural budgetary balance.

The city expects $69 million in casino-related revenue in 2023 including the $40 million upfront payment, $55 million in 2024, and $57 million in 2025 while a temporary casino is up and running. The permanent casino is set to open in 2026 when $170 million of tax revenue is expected, followed by $211 million in 2027 and $245 million in 2028.

The city is expected to host investors over the summer at its annual investors’ conference and has a series of deals in the works that would tap $4.66 billion of existing borrowing authority and $4.4 billion of newly requested capacity in a mix of new money and refunding deals under its general obligation, securitization, and water, wastewater, and airport credits.