A first draft of the 2025 City Budget

Some initial thoughts on what's likely to be an interesting budget season

Welcome to Chicago city budget season!

While the rest of the country digests last night’s red wave, today in Chicago is the first day of City Council budget hearings. Last Wednesday, Mayor Johnson released his 2025 budget proposal for the city, and you can read the entire 200 page proposal here if you’re so inclined.

Unlike last year’s budget, which sailed through without much controversy¹, this year’s budget is shaping up to be far more contentious. There’s a good chance the final budget City Council ends up passing looks quite a bit different from this initial proposal, but think it’s worth taking a look at where we are today.

How we got here

First, some context. As I mentioned, last year’s budget was pretty uneventful, and I thought the 2024 city budget actually looked pretty okay.² That uneventfulness, however, masked a pretty ugly longer-term outlook for the city. In late August, the mayor’s office released their 2025 budget forecast, which is intended to provide the first financial outlook for how the city’s tracking in advance of actual budget negotiations. That forecast outlined a $982 million funding gap which we’d need to close to successfully pass this year’s budget. That’s a big number! Let’s talk about where that gap comes from.

A lot of city spending is pretty baked in. By my math, about 60%³ of total spending this year is either things that we really can’t change, like servicing our debt or adequately funding pensions, or is spending on standalone city enterprises which don’t change our overall fiscal balance (water and sewer systems, plus Midway and O’Hare). If we set all of those aside, the remaining 40% is the Corporate Fund, which is the variable portion of the city budget.

That portion also has a lot baked in, at least into the baseline. We have collective bargaining agreements with about 90% of city employees; we’re pretty sure on how much they’re all getting paid next year unless we start laying people off or furloughing them. We have a good sense of how much tax revenue we’re going to collect, too - it’s pretty similar to this year, plus or minus some adjustments based on macroeconomic conditions.

The forecast highlighted a few specific drivers of the gap:

• On the revenue side, we’re projecting $600 million in lower revenue to the city than we did in the 2024 budget. That comes primarily from two things:

  • Chicago’s share of the state Personal Property Replacement Tax (PPRT)⁴ is coming in nearly $170 million lower this year than expected, and that shortfall is expected to continue next year as well, to the tune of $140 million or so.

  • Local non-tax revenue is expected to be nearly $300 million than what 2024’s budget had expected. The main culprit here is around the pension contribution necessary for non-teacher CPS municipal employees - this year, the $175 million contribution has been a high profile hot potato, with the city expecting the school district to pick up the tab and the school board fighting them on that.⁵ They’re expecting CPS to remain unwilling to pick up the payment next year as well.

• For spending, we’re projecting an increase of nearly $400 million versus the 2024 budget. The vast majority of that increase⁶ ($305 million, or is in personnel costs, which are expected to grow by about 9% next year. The Corporate Fund’s contributions to the city’s pension funds are also expected to grow by about $150 million.⁷

So what’s in this budget?

So that’s our baseline - now let’s talk about how the mayor’s office is proposing to close the gap:

The $300 million elephant in the room

First, let’s talk about the amusingly misleading $300 million “reduction of corporate fund subsidy to pension funds” in the above. You’ve definitely heard about this already, but with a different name - that’s the $300 million property tax hike proposal. Because of the way city accounting works,⁸ more property tax revenue to pensions means less revenue has to come out of the Corporate Fund, so it shows up here instead of under the “Increased Revenue” menu.

If enacted, that would constitute the largest property tax increase in Chicago since 2016 under Mayor Emanuel, and would bring the city’s tax levy up to $2.12 billion, nearly 20% higher than last year’s $1.77 billion. The mayor’s office has indicated that that hike translates to roughly a 4.8% increase in property owners’ overall property tax bill⁹, or about $222 for the owner of a $250,000 home. It’s worth noting that this proposed hike would also coincide with the Cook County Assessor’s 2024 reassessment for properties in Chicago, which already has many homeowners concerned about a potential tax spike.

It’s also worth noting, of course, that this all comes against a backdrop of Illinois and Chicago already having some of the highest property taxes in the nation. While it’s a worry for homeowners, it’s also particularly true for our commercial real estate sector, which has been showing signs of stress over the past few years. Higher commercial property taxes are also particularly tough on neighborhood businesses that don’t operate on big margins (doubly so for restaurants and bars - which also get hit in this budget proposal with a higher liquor tax).

It’s hard to believe that it’s prudent for us to push that stress even further. It also looks like it’ll be quite difficult politically, too - even some of Johnson’s strongest allies, like Pilsen Alderman Byron Sigcho-Lopez, have declared their inability to support that hike.

Personnel Cuts

On the cuts side, the budget also includes nearly $43 million in ‘personnel savings,’ which come from 744 full-time equivalent (FTE) positions being cut. About 60% of those (456 positions) come from cuts to the police (in total, the police department makes up about 38% of all employees, with around 13,650 of 36,000 FTEs).

It’s worth noting that these cuts aren’t actual filled positions where we’re laying off city employees. Instead, they’re all vacant positions we’re zeroing out instead. In a lot of cases (particularly for some of those police roles), they’re positions which have been vacant for months of years, and where we were unlikely to actually fill the role this year. That’s not really a cut. As Richard wrote about earlier¹⁰, the city’s broken hiring process often results in us funding a position on Jan 1, letting it sit empty for the year, and then being happy about coming in under budget on December 31st. Closing these positions now, instead of letting them sit empty, just means we’re just front-loading the savings we would’ve seen either way. It’s not an actual reduction in spending.

That’s an important point to underscore - while this budget includes a bunch of “operational efficiency” cuts and some accounting adjustments to book cost savings on the frontend, it really doesn’t seem to address spending in a meaningful way. The city’s biggest variable cost by far - about 63% of the Corporate Fund - is personnel, but we’re not doing anything to try and make a dent in that cost. The mayor’s office has projected that they’d need to reduce the city’s workforce by 17% to avoid increasing property taxes. That’s over 6,000 jobs, and I can see how that’s unpalatable. But it’s not a binary decision to cut either 6,000 jobs or 0 jobs - and yet the mayor’s office doesn’t think it’s even worth opening negotiations with labor around any kind of layoffs or furloughs?

A lot has been made - rightly - about Johnson’s campaign promises not to raise property taxes and how quickly he cast those aside here. But I’m also reminded of another line from his campaign, when he stated that his strength with labor groups would be an asset in making some hard decisions that could impact labor, because “who better to deliver bad news to a friend than a friend?” Instead, here he’s not asking labor to share in the burden at all - it seems a lot like he’s choosing to protect those friends at the expense of taxpayers and property owners instead. That’s pretty hard for me to swallow.

Funding Pensions

To give credit where it’s due - beyond the statutorily required pension payments, as in last year’s budget Johnson’s proposal also includes another $272 million supplemental pension payment. This would’ve struck me as a really easy thing to cut instead of hiking property taxes - and it seems like it’s already on the chopping block, with Alderman Byron Sigcho-Lopez proposing to get rid of the payment instead.¹¹

The supplemental payment is good, and the mayor’s office deserves credit for keeping it in. I don’t think getting rid of the supplemental payment is a good idea - it’s just trading a property tax hike today for a property tax hike in the future. We’ve also gotten more (well deserved) credit from the ratings agencies regarding our commitment to increasing pension funding, and I’m worried about anything that threatens to hamper that commitment. Realistically, while any pause to these payments is reversible (we could resume them next year), I’m also incredibly skeptical that we’ll end up doing so in the face of increasingly larger budget gaps going forward.

A note on the housing bond

We’ve previously covered the big $1.25 billion housing and economic development bond that City Council passed this past spring. While the city hasn’t actually issued any bonds yet, it’s expected to become a significant portion of how we fund housing and development in the city. Johnson’s budget speech reiterated his commitment to launching a $135 million Green Social Housing fund in 2025.¹² This is reiterated in the budget itself¹³, which also references $25 million from the bond to go towards home purchase and repair programs. Despite this, I somehow don’t see very much info regarding that spending being allocated or plans for the bonds to be issued.

The section on the Department of Housing, for example¹⁴, shows $238 million being allocated to the DoH, but the vast majority of that (over $225 million) comes from grant funds¹⁵, with only $11 million or so coming from the Corporate Fund. The detail section on revenue shows $117.3 million in new proceeds of debt, but that just coincides with the Library Fund’s portion of the city property tax levy. I don’t see any other proceeds of debt included as 2025 revenue/available resources anywhere in the documents. That all seems… weird, if we’re expecting the development bond to start kicking in in a meaningful way next year? I think there’s definitely a good chance I’m just missing something, but it seems odd that I can’t figure out the bond-related spending and revenue we’re expecting next year based on this budget.

Some other ideas

Okay, fine - so I don’t like tax hikes, but can I do more than just complain? Fair question, and one I’ll outsource a little bit on. In advance of budget season, the Civic Federation put out a big report on our fiscal roadmap with some suggestions on how we can best manage our current situation. It’s a nice thorough report which deserves a full overview, but here I’ll highlight a few of the suggestions I liked the best:

• Raise the garbage collection fee: Since 2016, Chicago has charged residents $9.50 per month for garbage collection, which covers only around 40% of the actual cost of collection (about $69 million in revenue versus $167 million in costs). In a lot of other big cities, including Los Angeles, Dallas, Phoenix, and San Antonio, those collection fees cover the entire cost. It seems really reasonable to raise these fees and treat garbage collection closer to one of our self-sustaining city enterprises, which would free up Corporate Funds for other uses.

• City Personnel Furloughs: The Federation points out that in the Great Recession the city instituted a furlough policy of City employees through one unpaid day off every two weeks (resulting in an effective 10% decline in payroll). As I mentioned above, personnel expense for the city is huge. If we’re trying to cut personnel expense without laying people off, this seems like a good idea - and it’s one worth exploring in depth before we hike property taxes across the city even further.

• Recalibrating Fire Department staffing: This one seems hard, and I imagine it wouldn’t be super popular, but the Fire Department is a huge department and we should make sure it’s running efficiently. The Civic Federation points out that 70% of all CFD calls today are for emergency medical assistance, not fire suppression, and that medical response likely doesn’t require as high a staffing ratio as fire response does. It’s worth looking into what we need to change here.

This is just the start

To reiterate a point from the beginning - I don’t this budget proposal is anywhere near final. We’ve seen enough pushback from aldermen that I actually think this budget season is likely to be a real negotiation, and we’re likely to see things evolve quite a bit. I’m looking forward to how things change, and will do my best to covering the new numbers as they come out.

But this budget cycle is also not the end of our fiscal hardships as a city. That budget forecast from August hammers this home - their base case outlook is for a $1.119 billion budget gap in 2026 and a $1.321 billion gap in 2027¹⁶. Even in their positive outlook scenario, our future gaps are over $600 and $700 million, respectively (and the negative scenarios are closer to $2 billion). This is going to be a really big continued fiscal challenge going forward, and we need to get serious about how we can best manage our spending with deleterious service cuts given that we have a population that’s already pretty heavily taxed. As you might have guessed, I think the best way to do that is prioritizing growth.

1. It passed with a 41-8 vote.

2. For an overview of what our typical budgets look like, I’d recommend revisiting Where the City Spends its Money and Where the City Gets its Money, too.

3. For transparency: my math here is non-Corporate Fund Spending divided by all Local Funds spending(per page 29 of the budget overview, this is about $8.43 billion out of $14.05 billion, or 59.99%.

4. It’s a weird name, but this is effectively a portion of the state’s corporate income tax which the state sends back to local governments.

5. We covered some of the drama around this payment here.

6. $304.4 million, or 80% of the $382.2 million total growth.

7. Taken together you’ll note that increases in the pension and personnel expense actually add up to more than 100% of the total spending increase. This is offset by some expected reductions in spending, like a $70 million reduction on what we expect to spend on migrants.

8. Property tax revenue (as well as a few other revenue sources) flows directly into the city’s Pension Fund, which is then allocated to the four actual pension funds. When that revenue isn’t enough to made the full actuarially required contribution, the city makes up the difference out of the Corporate Fund (that’s the “Corporate Fund Subsidy” they refer to here) - so any increase in property tax revenue reduces the amount the Corporate Fund has to transfer in.

9. For what it’s worth, I get a similar number if I try to break it out based on the city’s portion of my last tax bill - city taxes were around 23% of the total, so a 20% hike on the city portion is around a 4.6% overall increase.

10. An aside: I think this is the single best piece we’ve run on City That Works and you should read it, if you haven’t.

11. To be fair, the Civic Federation - who I’m generally a really big fan of! - also recommended that as a preferred option. That recommendation puzzles me a lot, and I still don’t think it’s a good idea.

12. Page 7, second and third paragraphs.

13. Letter from the Mayor on page 5, paragraph 3, plus ‘2025 Initiatives’ section of the Department of Housing budget summary on page 140.

14. Page 141 here.

15. Per the budget details, at least $130 million of that is federal grants and $30 million is state grants. I guess it’s possible that some of the rest is from the bond, but that would seem weird to me?

16. Page 16.