Chicago has long-term structural problems with its finances, thanks in large part to wildly underfunded pensions. The country’s third-largest city has a history of using short-term gimmicks to paper over its problems, such as a notorious 2008 deal that sold off 75 years of future parking meter revenue for $1.15 billion, which was quickly spent. That deal is still hurting finances today, which should have taught local politicians that there is no substitute for serious fiscal reform. Alas, apparently not.
The city’s net operating budget increased almost 40 percent between 2019 and 2025, “subsidized in large part by temporary federal pandemic funding that kept the City financially afloat,” according to Grant McClintock of the Civic Federation. “The pandemic is over, but many of the programs and personnel positions established during that time remain, and without the benefit of the federal funding that previously supported them.”
Mayor Brandon Johnson (D) proposes to offset a $1.15 billion shortfall by taxing the businesses that anchor Chicago’s economy, borrowing and more gimmicks.
The mayor proposes to increase the tax on the lease of “personal property” like computers, vehicles and software from 11 percent to 14 percent, and to bring back the city’s “head tax,” which would result in large employers paying $33 per worker, per month.
By making it more expensive to do business or hire workers in the city, these measures threaten Chicago’s future economic growth and tax collections. These moves are especially reckless given that the Chicago Fed’s 12-month hiring outlook is the weakest it’s been since the pandemic. Gov. JB Pritzker (D) says the head tax would penalize employment.
Other gimmicks include a temporary hiring freeze that will do nothing to address the long-term mismatch between spending and revenue, diverting surplus funds earmarked for economic development of blighted areas into the general fund and the school system (once again sacrificing future growth to fund today’s expenditures), and slashing additional payments the city has been making to shore up the city’s underfunded pensions.
Like the $166 million in bonds the mayor wants to issue to cover some of its operating costs, putting off pension obligations is exactly the kind of short-term thinking that got Chicago into this mess. Last month, S&P revised its outlook on Chicago’s general obligation bonds from “stable” to “negative,” citing “the persistent structural budget deficit, significantly weaker reserves following years of deficit spending, and reluctance to fully fund supplemental pension contributions in the fiscal 2026 proposed budget.”
A majority of Chicago voters oppose the new budget, and the city’s aldermen have rebelled against the proposal, releasing an alternative plan that would ditch the employer head tax and the borrowing in favor of greater operating efficiencies, higher garbage fees, and higher taxes on liquor, rideshare services and deliveries. Johnson has threatened to veto any budget that raises garbage collection fees. The aldermen will meet this week to discuss their options.
As if that weren’t madness enough, city treasurer Melissa Conyears-Ervin announced in November that her office would no longer invest the city’s money in U.S. Treasuries. That would be rich if she was worried about risks posed by the nation’s soaring deficits and unsustainable debt levels. But nope. Conyears-Ervin is running for Congress and says this is a protest against President Donald Trump’s “authoritarian regime.”
She’s not just selling her country short, but her city. The purpose of the investment portfolio is to make money so that the city can cover its obligations, not to make political statements. The treasurer, like too many other Chicago politicians in the past, is treating the city’s money as an extension of her campaign fund, rather than the property of taxpayers.
In fairness, reckless local politicians aren’t the only reason Chicago is in trouble. Reckless state politicians are also a major problem. Springfield recently passed a sweetener bill for police and firefighter pensions, which already had less than a quarter of the assets needed to ensure that beneficiaries get paid what they’re owed. The funding ratio will now drop to less than 18 percent. The situation is so bad that when a computer glitch delayed property tax collections earmarked for the pensions, the firefighter’s fund didn’t have enough cash to mail its checks out, forcing the city to step in with an emergency loan.
As Austin Berg of the Illinois Policy Institute said, when the firefighters ran out of cash, the city got a taste of what insolvency looks like. Unless politicians get serious, actually cut spending and start enacting sane, pro-growth policies, Chicago will get more than a taste of that bitter pill.
The post Chicago has lost its mind appeared first on Washington Post.
