Chicago Should Consider Furloughs, Higher Booze Tax, Watchdog Says

(Bloomberg) -- Chicago should explore a range of options from furloughs to higher liquor taxes to levies on services to address the city’s “unsustainable” deficits, according to the Civic Federation, a watchdog group.

Without endorsing a specific approach, the federation, which monitors Chicago and Illinois finances, laid out some cost-cutting and revenue-raising approaches for Mayor Brandon Johnson and the city council to consider in a report released on Wednesday. Chicago faces a more than $1 billion budget gap through 2025 and years of shortfalls given its long-term pension and debt costs that have lingered for decades, the report said.

“The City has reached a critical inflection point it can no longer postpone,” according to the report. The federation isn’t endorsing any one strategy, noting that some options that are not best practices still may need to be considered for the most immediate shortfall. “A generation-long persistence in structurally imbalanced budgets, coupled with high pension and debt burdens, mean the City will face enormous budget shortfalls in the coming years.”

The fiscal challenges come to a head after years of pension underfunding and borrowing. Additionally, more recent costs like caring for thousands of migrants that have arrived the last two years from the Southwest border have added to the load. The city is staring down a $982.4 million projected gap next year, the biggest since the depths of the pandemic. It also faces a surprise $223 million deficit this year largely because the Chicago Public Schools has refused to send a pension payment for non-teacher employees that participate in a city retirement fund.

“The City of Chicago faces serious financial challenges that will only be rectified through innovative solutions and long-term planning,” according to the Civic Federation, whose trustees and directors include scores of local business leaders. 

Options to reduce costs include cutting unneeded vacancies, having employees go on an unpaid day off every two weeks, reducing fire department staffing, and suspending a supplemental pension payment introduced in recent years. 

To boost revenue, the Civic Federation says the city could look at raising levies for garbage to cover the cost of collection and consider boosting a liquor tax that hasn’t changed since 2007. Congestion pricing or revisiting a so-called head tax that large employers would pay — a measure the city phased out a decade ago — are also within the city’s jurisdiction, according to the report.

Other options such as expanding the sales tax to services require state approval, according to the report. 

Property taxes are a major source of revenue, particularly to pay for the city’s underfunded pension systems, but Johnson campaigned against raising that levy when he ran for office in 2023. The Civic Federation cautions that an increase “should be a last resort” because the city’s ongoing property assessment could shift the burden from stressed commercial real estate to residents. Plus, sister agencies also facing financial struggles such as Chicago Public Schools will likely raise its levy. 

“More difficult choices will need to be made to reduce future deficits,” the Civic Federation said. 

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