The third-largest city in the United States is facing a significant fiscal challenge: Chicago expects a deficit of nearly $1 billion in 2025. Mayor Brandon Johnson announced that increased pension and labor costs will make up the bulk of the deficit. In addition, an unexpected shortfall in this year’s budget must be made up.
According to a budget template, the city must close a $982.4 million deficit in its main operating account, known as the Corporate Fund, for next year. That deficit also includes the cost of migration services and the drop in revenue from a replacement tax on businesses. “The magnitude of the budget gap is significant,” Johnson said during a news conference. “It will require decisions that reflect our shared commitment to creating an economy that works for working people. Sacrifices will have to be made.”
Freshman Democratic Rep. Johnson is projecting a $222.9 million deficit this year. The City Council passed a balanced budget for 2024 late last year after Johnson closed an expected $538 million deficit by cutting costs, forecasting higher revenue from events and tourism, and using funds from tax-funded development areas.
The new deficit this year results from a decline in so-called substitute taxes on personal property and the fact that Chicago Public Schools failed to transfer $175 million to the city’s pension fund for non-teaching employees.
Those entanglements with the school district and rising pension costs pose a challenge for Johnson, a former social studies teacher at CPS. Before fiscal year 2020, the city paid the entire employer contribution for employees. A new agreement required the school district to pay two-thirds of the cost, something CPS had not budgeted for.
Revenues so far this year are 3.4% below budgeted estimates due to lower revenue collections from the substitute tax.
The problem this year is not the city’s overspending but lower revenues, said Budget Director Annette Guzman. The city is now considering measures such as a hiring freeze to close the gap. Johnson would not comment on exact savings measures or say whether he will reinstate a policy of raising property taxes in line with the rate of inflation that he once opposed. Nearly 80% of property taxes go to the city’s severely underfunded pension funds, which carry an unfunded liability of more than $37 billion.
For 2025, the city plans to contribute an additional $227 million to its four pension funds, in addition to statutory requirements, continuing a policy begun two years ago under the Lightfoot administration. In 2024, about $306 million was added as part of the pension advance payment to reduce future costs.
Johnson, now preparing his second budget, is trying to deliver on his progressive social and economic campaign promises while addressing the dire fiscal situation. He will unveil his full fiscal plan, including measures to close the gap, in the next month or two. The Chicago City Council will then vote on the proposal by the end of 2024.
“It’s clear that we have to make some tough decisions in our budget process,” said Alderman Bill Conway, vice chairman of the City Council’s Finance Committee, in an interview before the budget forecast was released. The city needs to show that it is being “more careful” with taxpayer money before asking for more revenue, he added.
