The City Council and the mayor are continuing to squabble over the city’s budget. At NBC Chicago Mary Ann Ahern and Rose Schmidt report:
An alternative budget proposal without a head tax is moving forward, as the stalemate continues at City Hall.
Members of the City Council got creative in how they made up for the revenue lost by taking out the head tax and replacing it with plans to add restaurant video gaming and sell new ads on light poles and other infrastructure.
After four hours of debate Tuesday, the Committee on Finance approved the alternative budget plan 22 to 13, but it’s still several steps away from final approval.
The proposal is different from Mayor Brandon Johnson’s plan, which includes a tax on the largest companies in the city. Under Johnson’s plan, employers with 500 or more employees would pay a $33 per employee per month tax.
The editors of the Washington Post put it succinctly—”Chicago has lost its mind”:
Chicago has long-term structural problems with its finances, thanks in large part to wildly underfunded pensions. The country’s third-largest city has a history of using short-term gimmicks to paper over its problems, such as a notorious 2008 deal that sold off 75 years of future parking meter revenue for $1.15 billion, which was quickly spent. That deal is still hurting finances today, which should have taught local politicians that there is no substitute for serious fiscal reform. Alas, apparently not.
The city’s net operating budget increased almost 40 percent between 2019 and 2025, “subsidized in large part by temporary federal pandemic funding that kept the City financially afloat,” according to Grant McClintock of the Civic Federation. “The pandemic is over, but many of the programs and personnel positions established during that time remain, and without the benefit of the federal funding that previously supported them.”
Mayor Brandon Johnson (D) proposes to offset a $1.15 billion shortfall by taxing the businesses that anchor Chicago’s economy, borrowing and more gimmicks.
The mayor proposes to increase the tax on the lease of “personal property” like computers, vehicles and software from 11 percent to 14 percent, and to bring back the city’s “head tax,” which would result in large employers paying $33 per worker, per month.
By making it more expensive to do business or hire workers in the city, these measures threaten Chicago’s future economic growth and tax collections. These moves are especially reckless given that the Chicago Fed’s 12-month hiring outlook is the weakest it’s been since the pandemic. Gov. JB Pritzker (D) says the head tax would penalize employment.
It’s illustrated with a big picture of Brandon Johnson.
Neither of those pieces touches on the impending calamity if the city fails to enact a budget and, perhaps, even if it does given the shenanigans.
A move by credit ratings agencies to further reduce Chicago’s credit rating to Not Investment Grade, i.e. junk, would make it expensive and maybe even impossible for the city not merely to borrow to fill in its budget deficit but even to refinance its existing debt.
But wait. There’s more. The State of Illinois is very nearly at the limit of what it can do legally or politically to help Chicago. It cannot absorb Chicago’s obligations without risking an additional downgrade of its own. Illinois already has very nearly the worst credit rating of any state. It cannot reduce accrued pension benefits without violating the Pension Clause of the state’s constitution. It cannot authorize Chapter 9 lightly without political upheaval and/or constitutional challenges.
Once markets perceive that the city cannot act alone or what it can do alone is inadequate, the state is politically disinclined to act visibly, and legal constraints prevent clean restructuring, it will inevitably impose higher borrowing costs.
The most likely state action is to create a sort of state oversight board and put Chicago into what amounts to receivership. But there’s a problem there, too.
We rather obviously have a governor who is running for president. That will turn Chicago’s problems into a monkey on the back of national politics, feeding an image of Blue State fecklessness. Since that’s the last thing that Pritzker needs, my guess is that he keeps Chicago’s problems as distant from himself as he can.
I had once yhought that Chicago’s privileged geographic position, like New York City’s, would prevent a Detroit style collapse, but I’m beginning to think its collapse is inevitable.
By collapse I mean that a majority of businesses and people simply abandon the City. Abandonment is also underway at a number of West Coast cities. For reasons beyond understanding, but probably involving Black Magic, witchcraft, and human sacrifice, Boston seems to be immune to collapse, although it is some 300,000 below its 1950 peak.
Boston is resistant because it’s the state capital. Boston’s other primary employment sectors (healthcare, education, financial) are all heavily subsidized. I expect the tech sector to dribble out of Boston slowly, then all at once.
New York’s primary employment sectors are all heavily subsidized.
The financial sector exit from Chicago has already begun.
“The financial sector exit from Chicago has already begun.”
Although I live in mountainous far No GA now, you would have to be comatose to not know that, this side of the Mississippi, the SE is the future. Miami, Orlando, Tampa, Jacksonville, Atlanta, Greenville, SC, Nashville, Chattanooga, Austin an Dallas, various NC. Next up: Alabama.
I guess these big city mayors just figure they will get theirs and be gone before their cities are hollowed out. It takes time. But what horrible people they are. And what suckers so many voters are. Of course, Chicago will have restaurant slots………..so they’ve got that going for them.