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Chicago's budget crisis, explained

Budget season is here but it’s more dogged than usual. How will the city recover from a nearly billion-dollar budget gap?

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DAVID ALVARADO
  • David Alvarado

This story was originally published by City Bureau on October 16, 2020.

Every year, Chicago officials approve a budget, dispensing billions of dollars into city services and programs. While it's an annual event, this year's budget season unfolds against a backdrop of historic events.

The COVID-19 pandemic has thrust the city into a nearly $800 million shortfall by the end of 2020 and an anticipated colossal $1.2 billion budget gap next year—which would be the largest in Chicago's history. The budget process will determine how the city will attempt to increase revenue (potentially through taxes) and decrease expenses (by cutting city services and/or personnel) to balance its books, which means decisions made this fall could have an enormous impact on Chicagoans' everyday lives.

Since March, Chicago has seen over 80,000 confirmed COVID-19 cases, hitting Black and Latinx communities the hardest, making any cuts to city services even more painful. In a city that sees more than 50 million visitors a year, the sudden slowdown in tourism and hospitality has shaken the economy and blown a hole in the tax revenues that the city anticipated this year and next. On top of that, Chicago activists and protesters have joined the nationwide outcry to defund the police. Summer uprisings in the city, sparked by the deaths of George Floyd and Breonna Taylor and stoked by a long history of local police accountability activism, have put pressure on elected officials to divest from the Chicago Police Department's close to $2 billion budget and instead reinvest in community services and care.

With Mayor Lori Lightfoot set to unveil her 2021 budget on October 21 along with her plan to fill a $1.2 billion deficit, City Bureau presents a guide to what's going on with the budget process this year and how residents can participate in the conversation.

How has the COVID-19 pandemic impacted the 2021 budget?

The COVID-19 pandemic has had an enormous effect on Chicago's economy, with 65 percent of the city's budget gap stemming from a loss of tourism, hospitality, and convention business this year. Local revenue sources such as hotel taxes, restaurant taxes, and sales taxes plummeted after Gov. J.B. Pritzker announced a "stay-at-home" order to stymie the coronavirus's spread. Now, the city must find a way to fill this $1.2 billion budget gap and account for anticipated structural costs such as personnel salaries and pension debts. "In all, the city will pay its four pension funds $1.8 billion, approximately $91 million more than in 2020 from its general operating fund," according to a WTTW report.

What has Mayor Lightfoot hinted at as potential solutions to close the $1.2 billion budget gap for 2021?

"Everything is on the table," said Lightfoot of pending cuts in the "pandemic budget." She has alluded to a mix of furloughs, layoffs, and job cuts to close the deficit.

In the past, Chicago has raised property taxes to generate revenue, upsetting homeowners and property managers. Last year, the mayor imposed a tax hike on food and drink, which aimed to bring about $40 million in revenues, and taxed single trips from rideshare services like Uber and Lyft. But it's unclear if the mayor will fill the budget gap with increased taxes or a wave of city employee layoffs which she has said are her "last resort." According to the Chicago Sun-Times, residents could see a rise in the personal property lease tax on computer leases and cloud services, especially as people continue to work from home.

Thousands of Chicagoans took to the streets over the summer to demand defunding the Chicago Police Department which may help fill the budget gap. At a hearing on September 17, the Office of Financial Analysis proposed a $55 million reduction to the police budget including cuts to its tuition reimbursement program and uniform allowances. All in all, 2021 promises big changes in how the city operates. "The reality is that life will be different for the foreseeable future, impacting how services are provided and how departments are structured, and we must adjust to meet that reality," Lightfoot said.

How has the city closed its budget gaps in the past?

Reflecting back on last year's budget process, Alderwoman Rossana Rodriguez Sanchez (33rd) lamented the failure to restore the corporate head tax that would have brought $106 million a year into the city's coffers, and which critics claimed would push Chicago companies to leave. "We need to move away from the idea of austerity and be really serious about bringing in progressive revenue even if that means we have to tax people who can afford it," said Rodriguez Sanchez on WTTW.

Austerity is when a government creates a set of economic policies to control its growing public debt through spending cuts and reducing public benefits. These policies often include fees and fines to increase government revenue and balance budgets, according to the Center for Law and Social Policy. They typically include increasing property or corporate taxes, slashing government programs, laying off city employees, and privatizing public services.

Chicago has a long history of the latter. Former Mayor Richard M. Daley signed on to three privatization deals to steer clear from raising property taxes during budget season: the Chicago Skyway, four underground city-owned parking garages and the deal Chicagoans "love to hate," the 2008 parking meter lease. While the city initially collected billions of dollars in revenues from these deals, private investors now profit while the city loses its chance at collecting recurring revenue.

Mayor Lightfoot has claimed that Chicago has one of the most regressive tax systems nationally. What is a regressive tax, and how does it compare to a progressive tax?

Taxes are "regressive" if they place a larger burden on the poor than on the rich. Critics have claimed that the city's ride-hailing fee is a regressive tax because it impacts low-income residents whose neighborhoods lack public transit options and therefore rely on ridesharing services, such as Uber and Lyft. These fees, among the highest in the nation, were expected to bring in $40 million in revenue this year.

A progressive tax shifts that tax burden away from the working class and onto the wealthy and corporations. Pritzker's proposal for the "fair tax" amendment plans to tax residents with higher incomes at a higher rate and those with middle or low incomes at a lower rate. The amendment, which will appear on the November ballot, could potentially rake in $3.4 billion for the state, though only about $100 million will be available for thousands of Illinois cities to share amongst themselves. The amendment has faced some opposition, and its critics such as the Illinois Policy Institute have filed a lawsuit, calling out "misleading statements" used to describe the graduated tax on the ballot.

What power does the public have in the budget decision-making process?

The public's power over budgetary decisions is funneled through their elected representatives who ultimately vote to approve the budget. Residents can virtually attend the budget hearings, submit public comments and write to their aldermen, urging them to vote for or against the budget. However, residents have no direct power in how the budget is decided.

For the 2021 budget, the city held five virtual town halls, which kicked off in late August, released a digital survey and hosted community roundtables with volunteer budget ambassadors to gather input from residents. Overall, 90,800 people participated in the city's public engagement phase for the 2021 budget which represents three percent of the city's population. In the 2021 Budget Public Engagement Report, the city released data which shows that 38,336 residents participated in the survey compared to 7,347 from last year. Survey results overwhelmingly expressed the need to defund the police with nearly 9 in 10 respondents wanting funds reallocated away from the police budget and into community services. Nearly half of respondents were from the north side, with just 4 percent of respondents from the west side.

Why are people fighting to defund the police?

The push to defund the Chicago Police Department was given new fuel this year amid a national outcry to diminish "the role and power of police in our society," according to Project NIA video. The #DefundCPD campaign wants a public reimagination of safety and community services in Chicago. Backed by a coalition of grassroots organizations and activists, the campaign calls for the police to be defunded by 75 percent this budget cycle, with those funds reallocated to community services. Supporters are currently canvassing, supporting mutual aid efforts and hosting trainings on police abolition to "Stop Lori's Budget Burglary" on October 21. The campaign aims to legally defund the Chicago Police Department funding this fall in part through pressure on elected officials making money moves and bolstering public awareness and engagement in the city's official annual budget process.

Chicago remains the only one of America's top ten largest cities to not agree to police reforms despite an intense summer of protests. With its $1.7 billion police budget, Chicago spends more on money per resident on policing than eight of ten large U.S. cities, according to a U.S. News & World Report analysis of 2020 budgets. "If we equate more police with more safety, by this logic, Chicago should be safer than these other major cities but this is not the case," reads the recently released #DefundCPD toolkit.

What is the mental health ordinance?

The second question of the 2021 budget survey asked respondents to divide $1,000 among city departments. Respondents noted the desire to devote 43 percent of the budget to public health and community services, including mental health and antiviolence work.

Alderwoman Rodriguez Sanchez is a vocal supporter of defunding the Chicago Police Department and shifting funds into community services. She has proposed a new mental health ordinance which, if adopted by City Council, would establish teams of medical and mental health professionals who would be available 24 hours a day to respond to mental health crises instead of police officers. These centers would be funded in the 2021 budget. Nationally, at least one in four people killed by police have a severe mental illness.

Although nothing like this has been done before in Chicago, it's been successful elsewhere. For the past 31 years, the Crisis Assistance Helping Out On the Streets (CAHOOTS) has provided mental health crisis response in Oregon. In 2019, the CAHOOTS team handled 20 percent of 911 calls made to Eugene and Springfield, Oregon, police departments. Of the 24,000 calls made in 2019, one percent needed help from police. Due to its success, officials in San Francisco, Denver and Albuquerque are creating their own mental health crisis response teams.   v

Do you have any remaining questions about the city of Chicago's 2021 budget? Are you still curious about how the city's budget works?

City Bureau reporting fellows want to help. Fill out the form at the bottom of this story, email fatugade@gmail.com or leave a voicemail or text message for us at 312-361-0881.

This story was produced by City Bureau, a civic journalism lab based in Chicago.

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