CITY’S BUDGET FORECAST INCLUDES $42.7 MILLION INCREASE IN PROPERTY TAXES
Proposed increase would cost owner of a home valued at $250K just $34 more a year
Chicago property taxes will rise by $42.7 million — half of what an automatic escalator allowed — thanks to a $127.9 million budget shortfall for 2023 that’s the lowest in recent memory, Mayor Lori Lightfoot said Wednesday.
By exercising fiscal discipline and making “tough choices,” Lightfoot said she has managed to reduce the deficit in a budget that will serve as her reelection platform from $733 million last year and $1.2 billion during the height of the pandemic.
The automatic escalator that mayoral challenger Paul Vallas and others have vowed to repeal allows Lightfoot to raise property taxes by 5% or the inflation rate, whichever is less.
But with inflation now soaring to levels not seen in 40 years — 8.5% in July, down from 9.1% in June — the mayor had vowed
to “put some guardrails” up to shield beleaguered Chicago homeowners and businesses and prevent the city from seeking the full amount.
On Wednesday, City Hall revealed those “guardrails” would cut the automatic property tax increase, which is tied to the Consumer Price Increase, in half.
“We will not seek a CPI of 8.5%. We will not seek a CPI of 5%. Instead, we will provide taxpayers with a much-needed break and lower the CPI to 2.5%, which is the five-year CPI average,” Lightfoot said during a lengthy campaign-style address at the Chicago Cultural Center.
“I believe — we believe — that this is the fair thing to do.”
Since the city’s overall property tax levy is $1.6 billion, that would amount to a still significant $42.7 million, earmarked exclusively for pension payments.
That’s in addition to the $40 million upfront
payment the mayor demanded from Bally’s before embracing the company’s $1.7 billion plan to build a permanent casino in River West and a temporary casino at Medinah Temple in River North.
Lightfoot argued the 2.5% increase would cost the owner of a home valued at $250,000 just $34 more each year.
“To put that in terms that I can understand, that’s about the price of an Al’s Italian beef — hot, dipped, with extra cheese — for a family of four,” the mayor said.
“The average home price of $250,000? A $34 additional tax? I think people can live with that. I think that’s reasonable . ... Nobody wants to pay taxes. But [if ] the choice is non-delivery of city resources, layoffs of city workers or a modest tax increase, most people would say, ‘OK, Mayor. I get that. I may not like it. But I get it.’”
Lightfoot said she expects city spending to grow by $228.2 million over the $16.7 billion included in her 2022 budget. That budget marked an unprecedented 30% increase in city spending, thanks to an avalanche of federal coronavirus relief funds.
She anticipates pushback from the same City Council members who opposed the automatic escalator the first time around. But she argued the annual trigger makes sense because it gives home and business owners the “predictability” they crave.
“For years, mayors in this town wouldn’t make the tough decisions around funding pensions properly, so pensions became grossly underfunded. We’d skip property tax increases every single year. And then, suddenly, year after year, you’d have the highest property tax increase in the history of the city. That benefited no one. And it certainly didn’t benefit members of the City Council who had to take those tough votes,” she said.
“It’s easy in an election year to say, ‘Let’s do nothing.’ But our pension obligation continues to grow year after year. So if we do nothing, be sure, taxpayers, they’re coming back for you later.”
The $127.9 million budget gap is likely to be filled without any other significant increase in taxes, fines and fees.
As always, the 2023 budget forecast that replaced the city’s preliminary budget also includes projections for the next three years.
If the Chicago economy is flying high, the forecast projects a $306.1 million shortfall in 2024 and $265.7 million in 2025. If there is a “negative” outlook, the deficit that Lightfoot or her successor inherits will rise to $951.3 million in 2024 and a staggering, $1.4 billion in 2025.
During a follow-up phone call with City Hall reporters, Chief Financial Officer Jennie Huang Bennett said the out-year projections assume a “return back to normal patterns of sales tax, income tax and real estate transfer tax revenues.”
Those revenue projections, she added, were “extremely” conservative.
“We aren’t projecting a recession, per se. But there is a reduced GDP [gross domestic product] assumption versus last year’s forecast, in part because we are seeing a bit of softness in the recovery pace compared to last year.”
Last year’s recovery “was a little more of a check mark” in terms of revenues, she said.
“This year, we have a bit more of a Nike swoosh type of recovery. While we have seen a fairly significant recovery in revenues — 80% on average — that remaining 20% might have a bit of a longer tail.”
There’s also good news on Chicago’s pension funds.
“The city, for the first time in many years, is now paying the full freight of debt service,” Bennett said. “We are now paying for all four of our pension funds the actuarially determined contribution.”