Chicago Mayor Brandon Johnson addressed municipal bond investors and other market participants for the first time Wednesday during The Bond Buyer’s infrastructure conference in Chicago, the same day the administration floated a budget forecast showing a $538 million gap heading into next year.
Johnson, in a fireside chat with Chief Financial Officer Jill Jaworski, said he would raise new tax revenue to pay for new programs — avoiding a property tax hike — and vowed to propose a long-term fix for the city’s woefully underfunded pensions systems.
“I’m grateful to have our full finance team working diligently to find revenue streams that can address the hardships that people have experienced over the course of decades,” Johnson said. “Finding sustainable revenue streams that are tied to our values and building a budget around those values that does not place the burden on working people … that’s what we’re taking into the next phase of my administration.”
Jaworski told Johnson the hunt for new revenue is “one of the main reasons I’m in your administration — I have a passion about how do we find new revenues that are equitable and can change the way in which we fund the city’s mission, and I’m completely in agreement on the challenges our tax structure has placed on our lower-income residents.”
Muni market participants from investors to ratings agencies are watching closely to see how the new administration tackles the city’s biggest pressures, from underfunded pensions to crime, and whether Johnson will continue former Mayor Lori Lightfoot’s path toward structural balance that was rewarded with a series of rating upgrades.
During his campaign, Johnson proposed $800 million of new taxes, many of which he’s since dropped, and also pledged to avoid property tax hikes and to roll back an automatic property tax hike based on inflation instituted by Lightfoot.
His decision to drop the inflation-linked property tax increase accounts for $90 million of the $538 million shortfall the administration is projecting heading into fiscal 2024.
The budget forecast shows $149 million of the shortfall comes from covering costs tied to migrants arriving in the city. Another $45 million comes from a decision to not ask Chicago Public Schools to cover CPS non-teaching staff pension payments in the Municipal Employees Pension Fund.
For the third year, the city will pay the actuarially determined contribution rate on its four pension funds, with a total contribution of $2.7 billion, including a $307 million advance pension payment that continues Lightfoot’s move to make advance payments.
The administration will spend the next month honing its proposals to address the gap. Johnson expects to unveil the budget Oct. 11, with hearings and amendments to follow ahead of a vote prior to Thanksgiving.
Johnson said Wednesday that two of his top priorities are “finding revenue streams that allow us to one, make sure we’re protecting the retirement of public employees, and two, being able to address” the estimated 65,000 unhoused Chicagoans. On that front, the administration is expected to ask the City Council to approve a plan to triple the transfer tax on sales of homes over $1 million to generate $100 million for homeless services as part of his “Bring Chicago Home” proposal.
On pensions, Johnson noted that one of his early successes was persuading lawmakers to hit pause on a pair of bills that raise benefits for employees hired beginning in 2011, when a statewide Tier 2 pension system was established.
Chicago’s then-Chief Financial Officer Jennie Huang Bennett labeled the bills’ changes as one of the most expensive pension sweeteners in state history and warned the city couldn’t afford them without jeopardizing the city’s ratings upswing and forcing a property tax hike or public safety cuts.
The Tier 2 benefits need to be overhauled to avoid a violation of federal retirement rules as the benefits are expected to be lower than Social Security income, which the mayor called a “really, really jacked-up situation.
“Not addressing it would be not only a constitutional violation but it’s economically irresponsible and it undermines the essence of who we are,” he said.
Johnson said any new bills should implement a “long-term permanent fix versus what’s being proposed right now,” which he said is temporary and in “10 or 15 years we’ll be right back at it again.”
Jaworski said the administration is “going to come up with a bill that we’re behind, and it’s going to be a better bill and its going to be a better fix.”
The administration is hoping the General Assembly will take up legislation in the spring session.