Down to the wire with the 2026 Chicago City Budget

There is probably no more challenging job in local government in the US than being mayor of Chicago who faces the challenge of handling a myriad of diverse racial, ethnic and economic groups all vying for attention and parity: but, pleasing only some of the people some of the time.

Perhaps the worst part of the job has to be the crafting of the annual city budget, one definitely designed to leave some winners and losers crying foul with mail drops of negative flyers, dive bombing of email inboxes on why nothing proposed will ever work, cue the devil in the details coming to the fore waving his pitchfork, followed by the opening of the doomsday book; and, Mayor Brandon Johnson has found out the hard way when months ago he gathered his advisors to handle a $1.2 billion shortfall, hamstrung by the usual culprits: increased health care costs for city workers, police and fire pensions, mandatory contributions, the dearth of COVID era federal monies and Trump era cuts.

For his critics, and there are many, the worst idea was the so-called “head tax" that by definition places a tax per employee on workers of a certain size at a predetermined amount. And while Chicago has had one in the past, under Mayor Rahm Emanuel in 2014, who quickly dropped it; but, for Johnson, as opposition grew he revised it to $33-per-employee to companies with 500 employees, 175 corporations instead of 1,000, but the mayor still faced brickbats, and critics labeled it a job killer and predicted that major corporations would leave the city in droves.

The monies received would act as a "public safety” to help tackle the many challenges of public safety across the city; and, while car jacking have lessened from two years ago, there are still enough robberies, muggings and beatings to warrant such an effort plus the steady uptick of crime on the city’s El trains, mostly occurring on the Red line, but there was also the recent burning of a woman on the Blue Line.

Johnson stressed that, ".0008 percent could literally create thousands of opportunities for people to drive violence down. I cannot think of a better investment that our city can make than in investing in the things that keep people safe."

In an attempt to pass the plan as a progressive standard, the mayor said it was also a much needed cry to tax the wealthy and have them pay their fair share, a sentiment not unfamiliar over the last decade that echoed across both the liberal and progressive political spectrum.

Others felt differently, the Illinois Restaurant Association tagged it a job killer, even Gov. JB Pritzker was opposed,but there is a long history, and WBEZ took to the stacks to give us some background: “For as long as it’s been alive, Chicago’s employer head tax has been derided — in one colorful way or another — as a job killer.”

“It’s much more than a head tax… it’s a scalping tax,” said the late Ald. John Hoellen (47th) in an hour-long debate four days before Christmas in 1973 when the council approved the policy.

A decade later, even progressive former Mayor Harold Washington said he wanted to reduce and then nix the disfavored tax — requiring companies to pay $4 per month for each person they employ — “in order to stimulate economic growth,” though he never did.

In 2011, when the City Council voted to slash and repeal the policy by 2014, former Mayor Rahm Emanuel applauded Council members and declared, “The head tax is a job killer.”

“Fifty-two years after its inception, those talking points have endured as Mayor Brandon Johnson’s attempt to revive a version of the hated head tax — at $33 a month for employees at companies with 500 or more workers — faces staunch opposition from a group of City Council members sensitive to the concerns of Chicago’s business community.

But the actual effect of the head tax on employment is unclear.” [an] “analysis of city tax data and publicly available economic data, reviewed by four economic and labor experts, found a lack of evidence that Chicago’s previous head tax, or its repeal, is to blame for job loss or growth in Chicago.”

“It really is hard to assign any kind of causation to the head tax,” said Audrey Guo, an economics professor at the Santa Clara University’s Leavey School of Business, who has written two leading research papers on the impact of payroll taxes on employers.”

Ralph Martire, the executive director of the Center for Tax and Budget Accountability told WBEZ,“The city of Chicago has more to offer for business in a business location than suburban Cook does, generally speaking,” he said, pointing to Chicago’s post-pandemic recovery that also has appeared to outpace the suburbs.”

In agreement, “Civic Federation President Joe Ferguson said he, too, has not seen compelling evidence that would constitute calling the head tax a job killer:

Since the city does not keep tabs on how many businesses are in the city with 500 plus employees, their conclusions are at best, estimates.

One very important note, well over forty years ago the then Mayor Richard J. Daley could not wean himself off all of the revenue that supported essential city services such as fire police, sanitation,etc,

Income inequality, the previous concern two decades ago, has now morphed into affordability; and, addressed most recently in the New York mayoral election by candidate Zohran Mandami, now mayor elect, is a key point for any discussion of head taxes, with the effect most keenly felt on those making well below the $100,000 threshold.

Johnson, a former Chicago Teachers Union organizer, and teacher, who had the backing of the CTU to gain office, has continued to hold their support, and in part they issued this statement: 

“Seventy-one percent of Chicagoans support taxing large corporations instead of raising fees on working families, and 74 percent say they’re less likely to vote for an alder who raises fees on residents instead of taxing corporations,” the CTU said.

Within that vein, in a move that many City Hall observers called unprecedented, CBS News Chicago reported last week that “The City Council approved a $16.6 billion spending plan opposed by the mayor last week; with a 29-19 vote to approve the tax revenue package to fund it on Friday and a 30-18 vote to approve the rest of the budget on Saturday.”

“In lieu of the controversial corporate head tax backed by the mayor, his opponents' budget will rely on an increase in the city's plastic bag tax; overhauling the tax on off-premise liquor sales; legalizing video gambling terminals in Chicago; and opening up new advertising opportunities, such as naming rights for bridge houses along the Chicago River, selling banners on light poles, and placing ads on city vehicles.

It also proposes bringing in nearly $90 million from selling some debt owed to the city for unpaid fines and fees, including parking tickets, ambulance fees, and water bills.

In a bid to limit the impact of that debt collection on the city's poorest residents, Johnson signed an executive order prohibiting the city from selling individual city-administered medical debt, such as ambulance fees, and establishing rules for selling debt owed to the city.”

Simply put, the alternative package from the opposing alders is based on regressive taxes and those taxes put the burden firmly on lower income residents. And, with that in mind the mayor will not sign the legislation, nor will he veto it, avoiding a potential onslaught of a city government shutdown but called it “morally bankrupt” despite the fact that it retains 98 percent of what he wanted, and when asked by local media why he won’t sign it, he said,”“Because there are some elements of this budget that, quite frankly, I don’t want to give a signal to the people of Chicago that I support what I believe is one of the most detrimental and immoral aspects of this budget,” 

Not all alders were on board with this budget and one of the most prominent is Alr. Maria Hadden (49th-D) who said in her December newsletter, “It has been hard to cut through all the noise surrounding the 2026 budget negotiation process.  In short, I have grave concerns that the alternative budget proposal is balanced on the backs of working Chicagoans, relies too heavily on speculative numbers and assumptions, will create a mid-year shortfall, and that the process surrounding the alternative budget proposal lacked transparency and basic principles of good governance.”

Regressive taxes, as Investopedia notes, are “Unlike a progressive tax system where tax rates increase with income, regressive taxes like sales, excise, and payroll taxes affect everyone equally but take a larger portion from those who earn less.”

Racing to meet the end of December deadline she noted that the process seemed rushed was also a significant factor along with a lack of transparency and said, “I can’t support a process that I find opaque and rushed. I also cannot accept a process that circumvents scrutiny. Chicagoans deserved better, and I hope this can be a lesson for all in future budget negotiations.”

Chicago faces financial cliff with budget dilemma

City budgets across the United States are still recovering from the COVID pandemic and of the nation’s largest cities faces a seemingly uphill battle and that is Chicago, whose Mayor, Brandon Johnson, less than a year in office, faces not only the daunting task of filling a deficit of $1 billion, but also intense criticism of his handling of burgeoning crime, and balancing the budget of Chicago Public Schools, who face a deficit of $500 million, and in whose negotiations with his former employer, the Chicago Teachers Union, shadow his dissatisfaction with school CEO Pedro Martinez, who he faults for his refusal to sign off on a loan of over $300 million to stave off a the deficit.

“The latest budget crisis is playing out as the city faces one of the highest unemployment rates in the country, and its population is the lowest it’s been since 1920”, notes Illinois Policy, a right leaning think tank. And, without the revenue from the federal COVID relief package Chicago is facing a financial cliff.

“Between March 2021 and June 2024, Chicago spent more than $238.8 million on a host of programs including affordable housing, mental health, violence prevention, youth job programs and help for unhoused Chicagoans, according to the most recent reports filed with the U.S. Department of the Treasury as required by federal law, and, “That is approximately 44% of the $540 million Chicago officials set aside from the city’s $1.9 billion share of the federal relief package known as the American Rescue Plan Act, or ARPA,” in an October analysis by WTTW, the local NPR affiliate.

Johnson has said,” I saved the taxpayers over $220 million in last year’s budget, But the hard reality is that our expenses have outspent our revenue.”

To note, it has been reported that,  “The federal government spent over $800 billion to help states navigate the pandemic and government imposed economic shutdown,” and part of the well for Chicago will no longer be available, and statewide as a blue state, it’s hardly likely to receive additional monies from the incoming Trump admimstration.

Future Projections face special interests

Local media has also reported that “Baseline projections estimate the city’s budget will grow to $1.12 billion in 2026 and $1.32 billion in 2027, but those shortfalls could be as large as $1,58 billion and $1.93 billion. Chicago is projecting its 27th consecutive budget shortfall in upcoming years.”

Money may be the root of all evil says an old maxim, but managing a big city budget requires careful deliberations, and in Chicago facing off various groups, from the business community to low income and housing advocates is a tricky act; and, in a city with a long history of racial segregation, and disenfranchisement, it’s doubly hard to meet durable satisfaction with some of these groups. 

Equally important are those residents and local leaders who did not want another Black mayor after the battle-scarred administration of his predecessor, Lori Lightfoot.

Elected on a progressive agenda, Johnson has tried to center his decisions with that in mind but has strained relations with the business community who work from a different model.

Meanwhile many residents are taking a “bread and butter" stance towards finances, and often don’t have an understanding of when, and how, a progressive movement would benefit them.

During his mayoral campaign Johnson said that he would not propose a property tax to help balance the budget, and in a September press conference, he said, side stepping questions from reporters: "This is just a forecast," he said, "It's a moment in time, and so no decision will be made just based upon a forecasting. But what I will say is that I'm very much committed to our overall vision of investing in people."

Lately, in a recent media appearance the mayor emphasized that he is “going to continue to do what I was elected to do, which is to respond to decades-old processes and failures, by repairing the structural damage by actually paying into our pensions while making the critical investments that ultimately build a better, stronger, safer Chicago.”

Going Progressive and facing pension obligations

The latter is definitely a progressive stance, and the question of how he can meet that goal has become a central question of the overall city budget proposal; as well as that of the CPS budget, which contains a new, and costly, contract with the teacher's union.

CPS also is part of the mix, as noted earlier, and “While discussing the release of the forecast on a call with reporters, Johnson suggested he would continue to pressure Chicago Public Schools to assume approximately $175 million in pension payments for certain employees who participate in the city’s pension funds rather than the Chicago Teachers’ Pension Fund.”

Importantly, in recent reportage, we see the following: “The Chicago Board of Education did not include this in the $9.9 billion budget they approved last month. As the district faces its own budget shortfalls and is in the middle of negotiating the new CTU contract – which could add up to $13.9 billion in additional costs – it seems unlikely the district will bail out the city by taking on that pension expense.”

Outside of that, the four pension funds are as follows, per the Center for Tax and Budget Accountability: "The City of Chicago is responsible for funding the following four, defined benefit public pension plans: Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund (“LABF”), Municipal Employee’s Annuity and Benefit Fund (“MEABF”), Policemen’s Annuity and Benefit Fund (“PABF”), and Firemen’s Annuity and Benefit Fund (“FABF”).”

“We really need to look at prioritizing our investments,” Christopher Taliaferro, an alderman from a ward on the west side of the city and a former police officer, said during a recent budget hearing. “It’s almost like buying caviar when you can only afford Spam. I love Spam but the problem is we are spending beyond our means.”

A smaller property tax on the table?

November’s proposal of a $300 million property tax should not have come as a total surprise to some, but as we have seen, for many lawmakers it was simply unacceptable, and the 50 alder people sitting on the city council rejected it by 50-0; and, now facing a looming deadline of December 3 there is much hand wringing, and some who feel that there must be some sort of a property tax increase needed.

All options are on the table, and ABC7 reported that taking a property tax off the table was unfeasible, said some, and "For us not to get that revenue from last year was a mistake, and it was politics involved in that. And so they're going to ask for a property tax increase. I'd be shocked if they don't," 17th Ward Alderman David Moore said.

City Hall observers have felt that the council’s rejection was a new dawning that it would not automatically rubber stamp a mayoral proposal, as had happened with previous mayors, Harold Washington excepting, who was fought tooth and nail by the White council members; and, that his supporters saw as a racist attempt; and, few of that era can forget the virulent opposition by Ald. Edward Vrdolyak to Washington in the infamous Council Wars.

That assertion might now be considered hyperbolic with a different person sitting in City Hall and the council containing a greater majority of Black elected officials and department heads, but present reality beckons.

Start with the booze

BNN Bloomberg reported that, “Now, they’re negotiating piecemeal items from higher levies on alcohol sales to cloud computing to garbage fees. The fight is putting the city’s credit rating at risk, with S&P Global Ratings warning that the likelihood of ending the year without a budget has increased.”

Protests against the alcohol tax, which is expected to fetch $10 million in needed revenue, were swift and immediate: "We already pay, among the hospitality industry, the highest beverage taxes in the whole Midwest and some of the highest in the country," Pat Doerr with the Hospitality Business Association of Chicago said. "City Hall's proposed tax increase would make us the second-highest taxes on the enjoyment of beer, wine and spirits in the whole country."

Yet there are some that feel this tax would only be a pinch, not a stab, and, “The mayor's plan to raise an additional $10 million from higher alcohol tax would amount to adding just pennies to a drink served at a bar, his administration says. The hospitality industry says it can't afford any new tax after feeling the pinch from the rise in labor costs this year because of the increase [wages] for tipped workers,” reported local affiliate, ABC7.

"We're evaluating all of the different tools in our toolbox, including looking at slowing down hiring, an outright hiring freeze, as well as reducing other non-discretionary spending, sorry, other discretionary spending that our departments have within the budgets," City Budget Director Annette Guzman has said.

Surplus money to the rescue?

One option being pursued is to raid the surplus money for $272 million that was saved from tax years 2022 and 2023, and that Lightfoot, signing an executive order, designated to be sent “to the city’s pension funds on top of the more than $2 billion statutory payment already in the budget,” recently reported by the Chicago Tribune.

That effort, if approved, would cost a whole set of new problems, kicking the can down the road for future years and endangering a downgrade in financial ratings that were boosted by Lightfoot’s actions, even though some say it was still short of what was needed.

The Center for Tax and Budget Accountability has said,” These four systems have the lowest funded ratios for local pension plans in the country. Considered together, in 2022 Chicago’s four systems had $44.7 billion in liabilities, but only $10.8 billion in assets to cover those liabilities. This means Chicago, and hence its taxpayers, face a significant, $33.9 billion, aggregate unfunded liability.”

Moving away from those extra funds into the pension system would come at a cost, said Amanda Kass an assistant professor in Depaul’s School of Public Service, to the Tribune, “The credit rating agencies look very favorably on the city putting extra money into the pension systems because it help shore up the system’s finances faster. A move away from that is potentially a negative for the finances of the pension systems.”

“Chicago is really in some serious trouble,” David Schleicher, a Yale Law School professor who focuses on state and local finances, said to BNN Bloomberg, "The city is “caught between the failure to address structural problems during Covid and broad unhappiness with the property tax.”

Both the known and the unknown have reached a tipping point and for Illinois Policy, “The standoff is shedding light on Chicago’s mountain of debt and pension liabilities, which make up nearly one-third of the city’s spending and limit its budget flexibility. Last week, S&P put the city on a negative credit watch with at least a one-in-two chance of a downgrade in the next 90 days.”

Options meet baseline shortfalls

They also noted that, “The positive outlook assumes waning inflation and reduced interest rates spur faster economic growth in tandem with slower growth in city expenditures. The negative outlook scenario assumes a short recession in 2025, increasing expenses and decreasing revenues, followed by a rebounding economy in 2026 and economic growth in 2027. The city’s 2025 budget shortfall was consistent with the baseline estimates produced last year, which assume declining inflation and interest rates accompanied by modest economic growth.”

"There are a number of options that, you know, we will explore. What we're working to safeguard against is harm to constituents, to everyday people," Johnson has said in response to such criticism.

Racial equity is very much on his mind when he added, "As much as we are faced with challenges, it has not disrupted my vision to invest in people and especially the West and South sides of Chicago." 

Significantly, it was also reported: “And though the city was able to close this year's previously projected deficit of $538 million, the revised forecast shows the city is still facing a $223 million deficit for the rest of this year. The cause is mainly blamed on the $175 million pension contribution due from Chicago Public Schools and a shortfall in corporate tax revenue.”

Pension holidays were taken before specifically by former Mayor Richard M Daley, whose raid of the coffers, in 2007 to prop up the Chicago Transit Authority, as one example, to prevent a fare increase met a new standard of fiscal management.

“The problem we have is for two decades the employer didn’t do their part,”  Chicago Teachers’ Pension Fund director Chuck Burbridge told WGN Investigates in a 2017 report; and “They skipped payments.”

“They were called “pension holidays” and they were orchestrated under the watch of former Mayor Richard M. Daley and passed by the Illinois legislature under Democrat and Republican governors.”

Gong back is not an option

“In order to close the projected annual budget gap, the city has often resorted to “scoop and toss” budgeting practices, such as refinancing and restructuring debts, which further delay and increase inevitable costs. It has also relied on one-time revenue sources, fund sweeps or other “efficiency and savings” measures to temporarily provide the resources needed to “balance” the current years’ budget, remembered Illinois Policy.

They also added cautiously, “These short-term solutions, while politically expedient, do little to rectify the underlying problem in the city budget: Chicago spends faster than it earns. As a result, the city has faced a projected budget deficit each year for well over two decades.”

Taking a look in the rearview mirror of time reveals both philosophical and pragmatic approaches, and as The Week reported in September, quoting Johnson who said to reporters, that "sacrifices will be made." 

Hard decisions are often the words heard from alders as they look at deficits and Johnson’s statements, as well, gives us a glimpse to what may be on the table, as well as what many see as an eventual lower property tax.

Homeowners are worried

But most importantly there are many homeowners who feel that their property assessments have already burdened them and are concerned about any tax increases.

According to the Cook County Treasurer, for this year the median property tax bill is $3,811, an increase from $3,285 five years ago.

Scouring the budget for cuts is bound to please some, and no one, but the effort has been made, and as reported, there are steps being taken and as the city's budget director, Annette Guzman, said in a statement:

“This includes a series of budgetary restrictions such as a "citywide hiring freeze and stringent limitations on non-essential travel and overtime expenditures outside of public safety operations." Guzman noted that the 2025 budget shortfall — expected to be $982.4 million — is "largely driven by rising personnel, pension and contractual costs, alongside ongoing revenue challenges."

Rephrasing Abraham Lincoln, the question remains, is that enough to please some of the people, most of the time? In an awkward attempt to quell the storm, Johnson caught in the crosshairs, insists, “I don’t want cuts, I don’t want layoffs,”

There are some efforts by nearby states that Chicago could emulate; and, The Week noted that “Chicago is not the first city to face these challenges and could take lessons from other cities in similar situations. In 2022, Milwaukee was "on the verge of financial collapse" with a massive deficit and "possible bankruptcy on the horizon," said consultancy EY-Parthenon. The city was "able to document the local actions it was exploring and could demonstrate to members of the Wisconsin Assembly the mayor was taking steps to fix the situation."

Milwaukee's "comparison with other cities and a methodical accounting of the cost-cutting initiatives the city government had already undertaken helped demonstrate to legislators, the business community and the public that the politically difficult decision to raise taxes was likely unavoidable," said EY-Parthenon. This could become a similar path as Chicago works to dig out from its own deficit.”

Aftermath: Budget approved

On Tuesday, Johnson scored a win, some might say a pyrrhic victory, when the Council passed his $17.1 billion budget by a narrow vote of 27 to 23, without a property tax increase, returning to his campaign promise of not raising them, but the victory does contain a variety of tax increases on everything from valet parking to streaming services and cloud computing, and also that dreaded bag tax, but critics have argued that this is a temporary fix and still risks a credit rating downgrade by national credit agencies, this making it fallout for the city to borrow money.

For land debt from the purchase of the old Michael Reese hospital, there is a $40 million settlement by spreading out payments to pay off remaining debt from that space, intended for the 2009 Olympics, that later was awarded to Rio, in what some have also criticized the mayor for, but this is to help satisfy the $91 million purchase price by former Mayor Richard M. Daley, and not an error from Johnson.

Critics, including many council members, notably Maria Hadden of the 49th Ward, have voiced their concern with a process that she called fractious and that many have said lacked transparency.

Andre Vasquez of the 40th Ward said that the budget is a “short term fix that is not financially responsible,” and Anthony Beale of the 9th Ward while pleased with the absence of the $300 million property tax said, “Since then we just miraculously, voila, went down to $150 million,” Beale said. “We went to $68 million. Now, miraculously, voila again, we go to zero. However, in order to get to zero we are “fining”and “feeing” Chicagoans to death.”

Local affiliate, NBC5 reported, “Ald. Bill Conway, who voted against the budget, said the city “can’t ask working families to pay more,” and that Johnson is risking serious issues by not considering additional spending cuts.

“There were additional efficiencies to consider but unfortunately, Mayor Johnson repeated some of the same mistakes of those before him by being unable to make hard choices and kicking the can down the road even further,” he said in a statement. “This budget process was characterized by unsuccessful sweeteners, unnecessary delays, and proposals that, as the Mayor put it, were just meant to ensure we were paying attention.”

Hadden had added, according to coverage from WTTW, that, “Johnson’s handling of the budget negotiations left the City Council “fractured” and made it harder for Chicagoans to trust their government at a perilous moment for the city as President-elect Donald Trump prepares to take office.”

“We are not prepared, and the fault lies squarely with you and your administration,” she said.

It seems that the very same problems that have plagued previous mayors have settled squarely on Johnson’s shoulders, but without the rubber stamping of those councils.

Updated December 19, 2024 at 2: 15 p.m. CDST