The Policy Shop: Meet Chicago’s new machine boss

This week’s The Policy Shop is by Bryce Hill, director of fiscal and economic research at the Illinois Policy Institute

Brandon Johnson was inaugurated as Chicago’s newest mayor on Monday following a surprising and polarizing campaign. So now the hard work begins. We need him to get down to business. Johnson needs to face – and address – these major issues if we want to turn around our city: Chicago’s financial woes, violent crime and ongoing population loss.

The city’s finances are about to fall off a cliff. Not only will Chicago likely have a sizable shortfall this budget season, but the city is at the precipice of fiscal disaster with already-high taxes and a mountain of pension debt.

Here’s the financial reality Mayor Johnson faces:

• Chicago’s budget shortfall is estimated between $306 million and $951 million for 2024
• The city’s property tax levy is $1.73 billion compared to $860 million in 2014
• 42% of the city budget goes to pension payments and debt service
• Pension contributions are 23% of the city budget, triple the 6.8% rate in 2014
• Pension debt is at an all-time high and funding ratios are near an all-time low (we’ll probably get data confirming they’re at an all-time low when we get results for fiscal year 2022).

Violence. Mid-April’s “wilding” episode saw scores of teenagers descend on downtown Chicago with some of them smashing car windows and two being shot. Johnson called it a display of “silly” behavior. That, plus the mayor’s previous “defund the police” rhetoric, does little to inspire residents and the business community things will get better during the next four years. Crime in Chicago jumped over 20% in 2022 compared to 2021 and Chicago murders are still at their highest levels since the 1990s. Another recent tragedy is the senseless murder of 24-year-old Chicago Police officer Aréanah Preston, who was shot to death near her home in the Avalon Park neighborhood. Four teenagers have been charged.

Losing population – and businesses. Chicago just keeps losing businesses and people (45k residents in 2021, to be exact). Industry sources report one of Chicago’s largest money management firms could soon move their Illinois headquarters to Florida. Guggenheim Partners would be the sixth large company and second investment firm to move out of Illinois in the past year. From 2017 to 2023, Illinois’ ranking in the Tax Foundation’s State Business Tax Climate Index dropped 13 spots. CNBC ranks Illinois as the 11th-least friendly state for businesses.

Taxes aren’t the answer. Gov. J.B. Pritzker indicated recently most of Johnson's $800M tax hike proposals are going nowhere, especially the ones needing Springfield’s approval. Still, if Johnson’s only solution to Chicago’s budget problems is to tax people more and more, he’s giving everyone an incentive to consider the exits.

The Cook County Commissioner and Chicago Teachers Union activist has said he would tax: 

• $98 million from “making the big airlines pay for polluting the air” in Chicago neighborhoods
• $400 million over four years from raising the real estate transfer tax on sales of properties worth more than $1 million, which includes houses, apartment complexes and commercial properties (making those taxes renters and consumers will eventually shoulder)
• $100 million from new “user fees on high-end commercial districts frequented by the wealthy, suburbanites, tourists and business travelers.”
• Over $20 million from reinstating the $4-a-month-per-employee “head tax” on “large companies” that perform at least half their work in Chicago.
• $100 million from taxing financial transactions at a rate of $1 or $2 for every “securities trading contract.”
• $30 million from increasing Chicago’s already nation-leading hotel tax

We can't carry on like this. Tax hikes aren’t the answer: creating a bigger revenue pool is the only way out.

What Chicagoans want from their next mayor is clear – they want a safer, more affordable city. If the new mayor is open to implementing real solutions, the Illinois Policy Institute has a number of resources, such as our pension reform plan, to help the city and state find the best repairs.