Lightfoot wins budget endorsement, even as state political agenda stumbles

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Chicago Mayor Lori Lightfoot’s proposed 2020 budget won the endorsement of a prominent local civic research organization, despite its concern over precarious or one-time revenue sources that are needed to fully close an $800 million gap.

“The mayor and her team have identified a number of creative avenues to fill an enormous budget gap,” Chicago Civic Federation President Laurence Msall said. “However, this plan leaves very little room for error and does rely on some aggressive assumptions, including state and federal assistance that has not yet been approved.”

The organization released its more than 100 page analysis Wednesday ahead of Msall's testimony before the City Council.

The federation’s reservations were underscored by the latest state legislative veto session developments. Lightfoot’s proposed changes to the city’s tax on real estate transactions stalled amid pressure from some Chicago Democratic lawmakers to put more money toward homeless initiatives.

That leaves a $50 million hole next year that the administration now plans to close with additional debt refinancing savings, cuts, and a hiring slowdown. The $1.3 billion debt refinancing that is projected to generate $215 million in upfront savings was introduced Wednesday.

“We have to have maximum flexibility," Lightfoot said of her refusal to give in to the legislative demands. "A lot of things are competing for very scarce dollars."

Lightfoot and Gov. J.B. Pritzker reached an agreement this week on a revised tax structure for the Chicago casino that was part of a spring gambling expansion package, though its chances of passing before the veto session ends Thursday are fading. The original structure was considered too onerous to attract a private operator and financing. Though the 2020 budget doesn’t rely on casino license fees or tax revenue, they are central to the city’s plans to reach structural balance in 2022.

The city would receive about $176 million in the first year of operations and then more than $200 million in future years, with the funds allocated to bolster the city’s police and firefighter funds. The state can expect about $250 million annually. Gambling expansion funds are earmarked for the state’s new $45 billion capital plan.

The legislation surfaced and received a subject matter hearing Wednesday. Senate President John Cullerton, D-Chicago, said he didn’t believe there was time to get the bill through the approval process by Thursday.

Lightfoot said after the city council meeting that, based on her conversations with leaders, she was not ready to give up hope that consideration would have to wait for the next session in January.

“The situation is fluid but we continue to be optimistic," she said after a city council meeting. "It’s critically important for the city because the revenues generated by a Chicago casino are designated for our police and fire pensions and it’s obviously a top priority for us to have a structural sustainable revenue solution to help address our long-term fiscal needs."

Msall outlined the federation’s position Wednesday during a public hearing on the budget. The federation likes that Lightfoot is cutting costs, using zero-based budgeting, merging departments, improving fiscal management practices, and relying on targeted fees on rideshare companies, parking meters, and a restaurant tax over a general broad-based tax hike.

In addition to being uncertain over the state approval for the real estate transfer tax change, the federation is concerned over whether the federal government will sign off on a request for higher Medicaid reimbursements for emergency services. That accounts for $133 million of the $160 million in new revenue the budget counts on from increased ambulance fees.

The use of one time measures to close 40% of the current gap including a refinancing of $1.3 billion of existing debt for upfront budget relief also causes some unease. Other one-shots include a record $300 million tax-increment financing surplus, of which the city pockets $74 million.

“The use of one-time revenue sources to close an operating deficit is not ideal because it means the structural deficit gap will persist in that amount in future years,” Msall told the council. “This is troubling considering the city of Chicago faces continued financial challenges in the near future.”

While the casino overhaul is advancing, it’s not a done deal until passed and signed into law. The city will need to resurrect efforts on the real estate tax or come up with an alternative to the $100 million it was expected to generate in 2021.

Msall also warned against reliance on future gambling revenues as they can fluctuate as shown by state data.

The city’s budget estimates show a $1.19 billion shortfall in 2021 and $1.16 billion in 2022. Those projections don’t account for expense or revenue changes called for in the 2020 budget or casino revenues. “The difficult financial choices are not over,” the federation said.

The $11.65 billion all-funds budget includes $9.9 billion from local funds, up from $8.9 billion in 2019. That figure includes a $4.47 billion corporate fund. That is up from $3.82 billion due to rising personnel expenses and pension contributions as actuarial payments for two of the city’s four funds, which collectively carry $30 billion of net pension liabilities.

The city’s proposed gross property tax levy is $1.51 billion, which is a 5% increase over the $1.44 billion levy adopted in the 2019 budget. Lightfoot proposed $18 million of that increase to expand library hours and attributed the remainder to a previously approved hike to cover debt service and to account for new property.

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