After imposing a nearly $2 billion avalanche of tax increases just to begin to solve Chicago’s pension crisis, Mayor Rahm Emanuel will start an uphill battle for a third-term with a smaller financial headache.
Chicago faces a $97.9 million shortfall in 2019 — the city’s smallest since 2008 — but that does not factor in the steep cost of police reform or police and fire contracts that have yet to be negotiated.
“It is an improvement over last year and certainly from when he took office. But there’s going to be significant pressure in the coming years,” said Civic Federation President Laurence Msall.
“This is a government that has … a non-investment grade credit and it’s not out of the woods financially.”
Budget Director Samantha Fields said the annual financial analysis released Tuesday anticipates cutting off a $14 million corporate fund subsidy that helped the Chicago Public Schools bankroll Safe Passage and after-schools program this year.
CPS also received a $66 million tax-increment-financing surplus to support those programs for a grand total of $80 million. The size of the 2019 TIF surplus has yet to be determined.
“Because they have had other efficiencies and savings, they can still sustain those programs that we helped to fund in 2018’s budget. They no longer need our money. It won’t reflect any cuts on CPS’ end. It’ll just reflect a reduction in our subsidy to them,” Fields said.
Fields characterized the $97.9 million shortfall as “manageable.” Does that mean Emanuel will campaign for a third term on a budget that holds the line on tax increases?
“Yes,” she said, without hesitation.
“We will have maybe some recommendations from departments on smaller initiatives. But it certainly looks like we can find efficiencies to make our way through the 2019 budget.”
Two years ago, Chicago faced a $137.6 million shortfall that did not include the cost of saving the largest of four city employee pension funds.
Six weeks later, Emanuel lowered the boom on Chicago taxpayers — by slapping a 29.5 percent tax onto water and sewer bills to shore up the Municipal Employees Pension Fund.
Last year, the most tranquil budget season of Emanuel’s tenure ended with overwhelming City Council approval of a 2018 spending plan balanced with higher taxes on telephone bills, ride-hailing, and large-venue amusements, along with previously approved taxes on property and water and sewer bills.
More tax increases are on the way, but not until after the 2019 mayoral election.
That’s when the five-year ramp to actuarial funding will end and taxpayers will be on the hook to keep city employee pension funds on the road to 90 percent funding.
By 2023, the city’s contribution to all four funds will nearly double — from $1.2 billion this year to $2.1 billion, the report states.
Asked Tuesday how the mayor intends to close those gaps, Chief Financial Officer Carole Brown said, “We’ll either cut expenses or we’ll look at increased revenue. We do that every year . . . deliberately and methodically. But because of all the work that the mayor and the finance team have done, we do it from a point of planning, not from a point of crisis.”
The three-year financial analysis released Tuesday forecasts a “worst case” shortfall of $859.8 million in 2021 and a best-case scenario of $170 million if the economy is rosy.
The 2020 increase for police and fire pensions was pegged at $29 million. The overall increase for pensions is $40 million.
But the plan includes several gaping holes.
The city has yet to hammer out contracts with police officers and firefighters — or even start negotiating in earnest, even though both contracts expired on June 30, 2017. The projected shortfall includes no money for retroactive or future pay raises.
The city will be under pressure to satisfy the salary demands of rank-and-file police officers to offset the city’s need to change how cops are disciplined.
“Those [collective bargaining agreements] that we’ve resolved to date are included. Local 2 and FOP are not,” Fields said.
“We’ll evaluate at the time of the budget how close we are to resolving those [contracts]. And if it looks like something that will be resolved in 2019, we’ve solve that in the budget.”
The report also does not factor in the steep cost of police reform that former Police Board President-turned mayoral challenger Lori Lightfoot has pegged at $100 million over the next decade.
“The 1,000 additional police that the mayor hired over the last two years — that is included in this gap . . . But because we just started the comment phase of the consent decree and we don’t know what the final consent decree will look like, it would be premature to have the cost of that in” the annual financial analysis, Brown said.
Msall warned that “very modest revenue increases”in the city’s forecast–primarily from sales, amusement and transaction taxes–will not be enough to avoid “extreme financial pressure” on beleaguered Chicago taxpayers.
That’s “not just for city government, but because of legislation passed by the state related to Chicago Public Schools,” he said.
“If the state of Illinois does not address comprehensive pension reform for both state and local governments, the city of Chicago faces enormous downward financial pressure,” Msall said.