Lightfoot presents proposal to reduce $838 million deficit

In a long anticipated event, Chicago Mayor Lori Lightfoot presented her budget to the City Council, as scheduled, on Wednesday, proposing a large menu of items that would reduce the $838 million deficit, to less than that, but a start of at least $350 million, and giving lawmakers as well as residents a chance to hear, and later to participate in a series of neighborhood hearings.

Mayor Lightfoot

The mayor labeled her plan "transparent, inclusive, and crafted with unprecedented input from every corner of our city.”

The elephant in the room, or rather outside of it was the noisy demonstrations of the Chicago Teachers Union who planned a large presentation that added even more to the increasingly circus like atmosphere, of the teachers strike, with the mayor’s firm assertion that there was no money to pay for every school to have a nurse, librarian and social worker, a fact underscored by what amounts to every measure, and step anticipated from saving money on revenue collection process to taxing single ride shares and a controversial move to issue bonds, that has some local observers worried.

What most don’t want, including Lightfoot, is to have a repeat of property taxes, passed by her predecessor, Rahm Emanuel, the highest in city history. As she noted in her concluding remarks, where once more she mentioned needing help from the state capital, specifically, Gov. J.B. Pritzker, who had already demurred, in an earlier conversation about how much he might, or might not give, and her then reaction, some might say veiled threat that Chicagoans might not support his graduated income tax proposal, up for a referendum this fall.

"If we don’t get the authorization we need, we will be forced to make more painful choices when it comes to new sources of revenue," Lightfoot said.

"And we all know what those choices are," Lightfoot said, alluding to a possible increase, she has heard "time and again" that residents do not want. "But I have full confidence that we will be able to work with our partners in the state capital to keep that from happening."

The bond rating agency, “S&P said in a statement that “outside of a massive property tax increase, it has limited options to raise significant predictable revenues through a single tax or fee increase without state legislation that would expand the city’s revenue-raising authority.”

The new mayor has not shied away from the realities of a city whose history of financial missteps, including pension holidays, where no payments were made to the fund, or selling the family farm, as Mayor Richard M. Daley did, with the now infamous parking deal that marred his legacy, with billions lost to JP Morgan in a parking deal that also cost him support, from even stalwart Daley fans.

In that vein, It has also been reported that “she will hike parking meter rates as part of the 2020 budget, in a move that she said will allow the city to keep additional revenue rather than make higher payments to the company that leased the parking meters.”

"I am here to tell you that we didn’t solve our $838 million budget gap with a large property tax increase in 2020," Lightfoot insisted. "Instead, our budget gap was closed through a combination of savings and efficiencies totaling $538 million, along with a number of carefully chosen revenue sources totaling $352 million."

Using what she called "zero-based budgeting," or building the budget "from the ground up," Lightfoot said her administration identified $150 million in savings and efficiencies, reported local NBC affiliate, NBC Chcicago.com.

One proposal to save $200 million is a refinancing of debt, an outstanding $1.3 billion dollars, a move that her administration has been at pains to say is not the “scoop and toss” maneuvers of her predecessor, Emanuel that cause all sorts of headaches for the city balance sheet.

In advance, of Wednesday, the Chicago Tribune, on Tuesday also noted that, “Until recently, Lightfoot’s team wouldn’t rule out issuing pension obligation bonds as part of this year’s budget

Simply put, the “maneuver . . .  involves selling new long-term debt to raise funds to pay off maturing bonds, effectively extending the timetable for retiring municipal borrowings. Refinancing that aim to reduce interest rates typically keep the same maturity schedule,” noted the Wall Street Journal late last year, as the popularity increased for “cash strapped governments.”

The Wall Street Journal, last December, defined them: “Under a POB, the city issues bonds at relatively low interest rates and uses the money to reduce its billions in pension debt. The pension funds would invest the bond proceeds and ideally earn returns that outpace the interest the city would have to pay on the bond debt”, but experts say it’s a risky venture. 

“For example, pension bonds in Puerto Rico, Detroit and Stockton, California, contributed to their bankruptcies, prompting some fiscal analysts watching Chicago’s moves to urge caution," added the Journal.

While administration officials say that this is part of a long term strategy that might yield results, and is not dependent on POB’s per se, but, others we have spoken to have said, “don’t do it.

Consistent with her quest for special capital, she is looking for “a minority underwriter representation to be over 50 percent on the debt restructuring.”

“All the existing bonds that are being refinanced are due in 2040 and the new bond deal also would be due in 2040. . . Lightfoot would use all of the savings over the life of the refinancing deal upfront, opening the door for criticism from observers and analysts who think the savings shouldn’t be spent as a one-time fix.” added the Tribune.

Hard nosed realists, and macro economists, that have restored debt for other cities and tackled structural deficits have not, and cannot rule out increased taxes and in this regard, Lightfoot is not alone, even as she has scoured every inch of City Hall and city-wide departments for ways to cut expenses.

One of them, is to triple tax solo ride-share programs as Uber and Lyft, going in and out of downtown, a move expected to bring in $40 million and to relieve congestion.

“Rideshare trips in Chicago currently are assessed a flat $0.72 per ride. Under the new proposal, those fees would drop to $0.65 for pool rides, but increase to $1.25 for single riders. Users traveling to and from downtown, however, would pay a whopping $3 in taxes and fees. The downtown surcharge would apply on all weekday rides from 6 a.m. to 10 p.m.,” according to ABC7Chicago.com.

Uber Chicago spokesperson Kelley Quinn said in a statement, "The Mayor's proposal amounts to by far the highest ride sharing fee in the country and will take money out of the pockets of riders, who rely on apps to get around, and of drivers -- half of whom live in the South and West sides of the city."

In one of those politically incestuous relationships that characterize Chicago, Quinn held two posts in the Emanuel administration, notably as his chief spokesman. 

Rahm Emanuel

Perhaps as a consequence, Quinn added a jab at Lightfoot: “As a candidate, the mayor said she was committed to equity, yet she is proposing to hike taxes by nearly 80% on undeserved communities who do not contribute to congestion and lack reliable access to transportation.”

The record, in fact, shows that Emanuel did very little for public transportation, much like his predecessors; as City Lab transportation writers noted, as far back as 2018:

“Emanuel abandoned good ideas, like turning the city’s most popular bus line into bus rapid transit, despite it being constantly held up in traffic. And he was distracted by shiny objects designed primarily to serve the wealthiest few, like the aforementioned tunnel to O’Hare, despite an existing rapid rail service. Neither Daley nor Emanuel invested in a significantly expanded transit system (though both admirably identified funding for reconstruction of many rail lines).”

They mayor’s response? “I reject – and you should be deeply skeptical – of the false narrative ride-share companies are spreading” and, “The multi-millionaire owners of those companies have had essentially free reign in Chicago.

Thanks, in no small part, to one of Emanuel’s brothers, Ari, who had a stake in Uber.  and who has subsequently made a considerable amount of cash, Quinn’s statement of concern seems disingenuous.

“Lightfoot also will propose a tax hike on all food and drinks sold in Chicago restaurants. The proposal would double the current 0.25% tax on food and drinks sold at retail establishments and restaurants, the mayor’s office said. Aldermen will need to approve the increase, which would kick in Jan. 1,” again from the Tribune in advance of Wednesday’s presentation.

The mayor said this is a “modest increase that’s certainly fair” because Chicago’s restaurant tax is lower than “some of our suburban areas.”

Undoubtedly, this will not endear her to restaurant owners, including some on the City Council, such as Tom Tunney, owner of the proverbial old-school “Ann Sather” restaurants, serving their popular sticky buns and other comfort food stalwarts that Chicagoans have loved, but perhaps a little less so, if passed.

Approval is needed from the City Council on Nov. 26 and there will be some serious horse trading as many are seeing this as an opportunity to ensure that Lightfoot knows that her political honeymoon is over.

Game on! CTU strikes after refusing CPS offer

Dr. Jackson of CPS

The day has come, and the Chicago Teachers' Union announced that it could not accept the offer from Chicago Public Schools and Mayor Lori Lightfoot, and that the strike would begin as planned on Thursday, giving no solace to the mayor and School District Supervisor Janice Jackson, in what can only be called the very last thing wanted, this early into the former’s term in office, just over 140 days.

In anticipation of the strike, CPS and the mayor’s office announced that classes would be cancelled the day for the strike --- a move designed to help parents in child care, and to lessen the optics that the national media would pounce on in the nation’s third largest school system with over 300,000 students, and 24,000 teachers.

As in 2012, playing to school of public opinion, has mostly been in the union’s favor, with supporters expressing their engagement, before Thursday, and in a neat trick, Lightfoot has come out of this battle with her reputation largely intact, with only 12 percent blaming Lightfoot in a recent Chicago Sun Times/ABC Channel 7 poll.

This is in direct contrast with the last strike in 2012, where former Mayor Rahm Emanuel, who became the villain, in what was a teachers v. him battle where he wanted them to work longer hours without additional compensation.

Not all is fair in love and war, as the old adage states, and there were throngs of school teachers and staff, wearing red shirts near their schools, with signs that read, “Our Strike/Your Watch” - addressed directly to Lightfoot.

Ms. Weingarten

This is clearly a power play between a long underappreciated workforce, and a city divided by race and social class, where the differences are seen most starkly in education, right behind housing; and, unfortunately Lightfoot, being new, is the perfect scapegoat, in the war of words.

“We’re going to teach the new mayor a lesson,” says American Federation of Teachers president Randi Weingarten adding fuel to the fire.

Since Chicago got “home rule” to govern its education, during the administration of Richard J. Daley, those lines became hardened, and despite the more liberal policies of his successors, and son, Richard M. Daley, prying loose the vice of discrimination became even more difficult in an education district that is mostly black and brown, and mostly, recently, funded solely by a real estate tax; so, it does not take a genius to figure out who was on the losing side, for so long.

Enter Lightfoot with her mandate of change, and who was not the favored candidate, the plot thickens, with the defeated candidate, Cook County Board President Toni Preckwinkle, still in power, in that office, and also the local head of the Democratic National Committee, and in a blue city, and in a blue state, that counts for a lot; and, it was no surprise to see the near tear--stained face of Preckwinkle during her concession speech. 

Recently she announced that had she been elected mayor, there would be no strike; which might have been true, but as one person later said, "She would have given a blank check to the CTU and bankrupted the city, and then we'd be like Detroit."

While the CTU has vigorously denied that their endorsement of Preckwinkle, and not Lightfoot, had anything to do with the increased, and loud demands, for written promises for more social workers, nurses, and libraries in a city mired in red ink, (to the tune of $838 million), and a pension crisis of  $28 billion, those numbers cannot be ignored, say its critics.

As we said before, “Adding to the ire between the two was a commissioned poll, from March, that showed a victory for Lightfoot, “to finish first among 14 candidates vying to replace” Emanuel, which CTU Vice President Stacy Davis Gates called “trash.”

“Sharp rhetoric is not unknown in Chicago politics, but this time, on the backdrop of a weakened city finances, with the historic election of a black woman, in a city with nearly a 35 percent black majority, adds another dimension to an already burdened financial future.”

Putting Lightfoot on the ropes, nationally, and to embarrass her, seems to be more important, say some than finding a middle ground, or even, going back to work while negotiating, but this seems to have been never considered, and as Lightfoot has often said, they were bound and determined to strike, in what seems more and more to the mayor's supporters, as a take-down of her, as Weingarten noted.

In the recent past, the Chicago Sun-Times and The Chicago Tribune urged the union to take the offer of a 16 percent pay raise, over 5 years, to no avail, bringing this stalemate, which teachers said that they hoped to be short, but is apparent, now that the union is prepared to keep it ongoing, and has sent key negotiators, from the 40 member team back to the picket line, as the news cameras roll.

CTU has also been somewhat disingenuous claiming, in a press release, that “CPS gets upwards of $1 billion additional dollars a year from the state of Illinois to lower class sizes, which are among the largest in the state; support students in poverty . . . and address CPS’ demonstrated need for wrap-around supports for students who confront trauma and violence. Yet CPS and the mayor have refused to commit to investing that billion dollars in real equity on the ground for school communities.”

“But, in fact, CTU’s own filings with the independent fact finder in the labor dispute  indicate that most of that $1 billion went to CTU members' pensions,” says Crain’s Chicago Business columnist Greg Hinz, who said that nearly three-quarters of that went to teachers’ pension plans, unmasking Lightfoot as the villain, they want her to be.

“Yes, according to CTU’s own filings, $380 million from a property tax increase and $211 million from the state went specifically to shore up the fiscally weak Chicago Teachers Pension Fund. And revenue from the property tax hike is expected to bring in almost an additional $100 million a year on top of the $380 million,” he continued.

While the mayor has said that she is “disappointed” - how to clear the decks without the money remains a conundrum for many city hall watchers. Of course, the mayor could as columnist John Kass suggested, slash her salary and compensation offer, and provide the money for the so-called wrap around services, but that Machiavellian move could cost her good will in any later negotiations; but it’s not entirely a pipe dream, say others.

Mayor Lightfoot

"From a financial standpoint, we always have to keep in mind the taxpayers. CPS is just on the other side of pretty significant crisis and we don't have unlimited resources, but having said that, we put very generous offers on the table both for teachers and support personnel and I'm hopeful that we'll be able to bring them back to the table and resolve all the other open issues."

The 1995 law that says that teachers can only strike on wages and compensation is a major sticking point, and maybe, Lightfoot will have to go Gov. J.B. Pritzker hat in hand, for another change, and an IOU?

“There’s a finite amount of money that’s available,” she said. “As you know, we’re barely two years away from a moment when CPS was on the verge of insolvency. There’s not an unlimited pool of money, and I wanted to make sure that we made that point very clear.”

The rhetoric has gone back and forth with Sharkey, being the loudest, saying, according to the local CBS station, "Criticized the city’s offer of $1 million over the life of the contract to reduce class sizes in grades 4-12, and $2 million over the life of the contract to recruit and train new nurses, social workers, and case managers. He said that would be only enough money for two teachers and four nurses, social workers, or case managers per year for all of CPS."

The visit of presidential candidate Elizabeth Warren has also given CTU more national attention, and while Warren did not attack Lightfoot, the implication that support was needed, or else, has contributed to the circus like atmosphere, surrounding the strike.

“I’m here because the eyes of this nation are upon you. They have turned to Chicago for you to lead the way. For you to show how the power of standing together is the power of making real change in this country,” Warren said.

She also gave her final benediction to the union's position, when she said: “Everyone in America should support you in this strike ... you don’t just fight for yourselves, you fight for the children of this city and the children of this country."

.Updated, 22 October, 2019, at 5:35 p.m. CSDT