Chicago Mayor Brandon Johnson stares down a $1 billion city budget deficit

Updated budget forecasts show a $982 million shortfall for the upcoming 2025 budget as Chicago grapples with $223 million remaining deficit this year. Mayor Brandon Johnson refuses to rule out property tax hikes.

Mayor Brandon Johnson’s Office of Budget and Management is projecting the city is facing a $982 million budget shortfall for the upcoming 2025 budget as city leaders are still trying to figure out how to close the $222.9 million shortfall for this year’s budget.

The 2025 Budget Forecast released Aug. 28 included projections for the remaining two years the Johnson administration will oversee the city’s financials. Baseline projections estimate the city’s budget deficit 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.

Johnson is expected to propose a budget in October.

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. Chicago Public Schools is also facing a major budget deficit of $500 million, which does not include added costs from a new contract Johnson is negotiating with his former coworkers at the Chicago Teachers Union. CTU wants at least $10 billion in new contract demands.

Bottom line: The cost of government is skyrocketing as there are fewer Chicagoans with fewer jobs to pay for it.

The new city budget forecast includes alternative scenarios taking a positive outlook and a negative outlook. These scenarios show Chicago’s upcoming budget deficits could range from $634 million in 2026 under positive assumptions to $1.93 billion in 2027 in a negative scenario. 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.

The latest budget forecast reaffirms the city is still grappling with fundamental budgetary issues. Chicago in each year since at least 2001 has faced a structural deficit – meaning growth in expenditures is expected to outpace growth in revenues. However, the city is legally bound to pass a “balanced” budget.

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.

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. Last year, Johnson declared a record-setting  $434 million tax increment financing funds “surplus,” boosting local government revenues and sending an extra $100 million directly to the city budget. Despite this, the city is still facing a $223 million budget shortfall that it must close before the end of 2024. Because the city continues to rely on temporary, one-time “fixes” rather than truly aligning spending and revenues to eliminate the structural deficit, Chicago is projecting its 27th consecutive budget shortfall in upcoming years.

With baseline budget deficits projected at nearly $1 billion and growing in upcoming years, the Johnson administration is left with the challenge of closing the gap by the time the mayor unveils his proposed budget in October. 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. 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.

Johnson refused to rule out hiking property taxes while discussing the forecast with reporters.  The mayor campaigned on a promise to not raise property taxes during his first term in office, but could backpedal on the pledge in light of the massive budget shortfall. The city’s property tax levy, which currently tallies nearly $1.8 billion, has already more than doubled since 2014 and forced residents to pay massive tax hikes.

Last year, the administration chose to forego the city’s automatic annual increase to the property tax levy based on inflation, though the total levy increased as new property was added to the tax base. Under the automatic adjustment, the city’s property tax levy would increase by more than $60 million, or 3.4%, before considering the additional revenue from new development and expiring tax increment financing districts.

Even if the mayor breaks his promise and raises property taxes, the city will still be facing a substantial budget shortfall. That means the administration could renew attempts to increase city revenues via tax hikes.

Last year, residents rejected Johnson’s real estate transfer tax hike proposal, which would have increased taxes on real estate transactions by an estimated $100 million per year. But despite this rejection, the mayor has no shortage of tax hike proposals from his campaign at the ready. Those include a $98 million tax hike on jet fuel, $100 million in new “user fees on high-end commercial districts,”  $20 million from restoring the employee head tax and implementing a city financial transactions tax.

None of these campaign ideas have been formally introduced at City Hall. When voters have been given the choice, they have rejected Johnson’s calls for higher taxes.

Chronic fiscal instability and the near-constant threat of higher taxes and fees is driving people to leave and pushing away potential investment in the city’s economy. Domestic outmigration – residents fleeing for other areas – has been the sole driver of Cook County population decline in recent years, and is likely the driving factor in Chicago’s population decline. The city’s population has declined for nine consecutive years to its lowest level in a century and is currently on pace to be overtaken by Houston as the nation’s third-largest city by 2035.

Last year, polling conducted for the Illinois Policy Institute showed 34% of Chicagoans would leave the city if given the opportunity, with 39% of those who said they would move citing taxes and affordability as a reason.

Polling from NPR Illinois and the University of Illinois found 61% of Illinoisans thought about moving out of state in 2019, and the No. 1 reason was taxes.

Johnson should heed taxpayers’ warnings when considering ways to close Chicago’s upcoming $982 million budget shortfall. Residents are tapped out and have soundly rejected tax hikes. If city leaders ignore them, there will be ever fewer Chicagoans to tax.