The City of Chicago is facing a double-edged fiscal crisis as it prepares for FY2025. With a staggering projected deficit of $982.4 million for the upcoming fiscal year and a remaining $222.9 million shortfall for FY2024, officials are scrambling to identify solutions. The Civic Federation has released a comprehensive report offering immediate and long-term recommendations to help city leaders navigate these unprecedented challenges.
The report not only highlights Chicago’s ongoing budgetary difficulties but also presents a framework of options aimed at stabilizing the city’s finances. Civic Federation President Joe Ferguson emphasized the gravity of the situation: “The City’s habitual reliance on one-time revenues, unsustainable pension obligations, and the lack of financial clarity in public safety spending are key issues that need urgent attention. Our roadmap provides a set of immediate actions and longer-term solutions to help Chicago restore financial stability.”
Immediate Potential Non-Revenue Options
The Civic Federation’s report suggests several non-revenue measures that the city should prioritize before resorting to new taxes or fees:
- Cut or offset dormant vacancies: The city routinely carries thousands of unfilled positions in its budget, which tie up unnecessary resources. The city could reduce its projected deficit by cutting positions that it does not plan to fill in FY2025.
- Institute mandatory furloughs: Similar to measures taken during the Great Recession, Chicago could implement unpaid furlough days across all departments, which could result in substantial payroll savings.
- Suspend supplemental pension payments: Although supplemental pension contributions have helped improve the city’s pension sustainability, suspending these payments for FY2025 could provide immediate relief, reducing the deficit.
- Repurpose ARPA funds: With $576 million in remaining American Rescue Plan Act (ARPA) funds, the city should explore whether some of this money could offset eligible non-recurring expenses for FY2025.
- Suspend non-critical capital expenditures: Deferring or canceling certain capital projects could free up resources for more immediate needs.
- Utilize TIF surplus: Despite previous warnings about overreliance on Tax Increment Financing (TIF) surpluses, the Civic Federation acknowledges that using TIF funds might be necessary this year to avoid further burdening taxpayers.
Immediate Revenue Options
If non-revenue options are insufficient, the report outlines several revenue measures that could be considered:
- Increase the garbage collection fee: Currently, the city’s garbage collection fee covers only 41.1% of the total cost of waste removal. Raising this fee could generate more revenue for other essential services.
- Recalibrate fire department staffing: With more than 70% of calls to the Chicago Fire Department (CFD) related to medical emergencies, the city could reassess fire department staffing levels and shift resources toward ambulance services.
- Increase the liquor tax: Chicago’s liquor tax has not been adjusted since 2007. The city could consider raising this tax, although it already imposes some of the highest liquor taxes in the country.
- Implement a grocery tax: As part of the FY2025 state budget, the elimination of the grocery tax in 2026 will cost the city $80 million annually. Reintroducing this tax could help cover the shortfall.
- Congestion pricing: Chicago could explore congestion pricing measures, such as charging vehicles to enter congested areas, to generate additional revenue.
- Bring back the employer’s expense tax: Known as the “head tax,” this fee was previously levied on businesses but was phased out in 2014. Reintroducing it could generate approximately $23 million annually.
The Civic Federation’s roadmap aims to provide city officials with a clear strategy to address the FY2025 budget deficit while positioning Chicago for future fiscal sustainability. The report also underscores the need for long-term planning to avoid similar challenges in FY2026 and FY2027.
While the immediate focus is on avoiding a property tax increase, the Civic Federation emphasizes that tough decisions must be made quickly, as the city’s financial obligations continue to grow.
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