October 01, 2026
By Daniel Vesecky
The City of Chicago’s FY2027 budget process is now underway, with the Mayor expected to introduce a proposed budget to the City Council in October. The process began with the release of the City’s Budget Forecast, which provides the first detailed look at the financial challenges facing the City in the coming fiscal year. The forecast projects an $882.4 million budget deficit for FY2027 - nearly $284 million less than the $1.15 billion gap projected last year for FY2026, but still one of the largest projected deficits in the City’s history.
The smaller projected deficit is a positive development, but it does not change the fundamental financial challenge facing Chicago. The City continues to face a structural imbalance between recurring revenues and expenditures, while significant pension and debt costs crowd out the ability to fund city services. The FY2026 budget did not resolve these underlying challenges. Although the final budget approved by City Council restored the full supplemental pension payment and removed the Mayor’s proposed head tax, it also retained borrowing to support operating expenses and relied on other measures that did not address the City’s structural deficit. The Civic Federation concluded that the adopted budget left Chicago in essentially the same difficult position heading into FY2027.
The FY2027 budget therefore represents an important opportunity for the Mayor and City Council to demonstrate meaningful progress toward long-term fiscal stability. Chicago’s budget should not only be balanced, as required by law, but also focus on reducing reliance on one-time resources and other short-term measures and addressing the City's structural imbalance. Progress in these areas would also help put the City on a path toward improved credit ratings and lower borrowing costs.
With the Mayor’s budget proposal expected next month, the Civic Federation is highlighting several areas that will be particularly important to watch for in this year’s budget cycle. The following are five key priorities we hope to see reflected in the FY2027 budget as the City works to address its immediate budget gap while making progress toward a more sustainable long-term financial position.
1. Avoiding Short-Term Budget Fixes
The City of Chicago has too often relied on short-term measures to close its budget deficits, using tomorrow’s money to pay for today’s costs. The City’s history of using budget gimmicks—including debt maneuvers such as taking on long-term debt to pay for regular operations and “scoop and toss” borrowing, long-term asset sales, and other one-time revenue sources—has contributed to the fiscal challenges the City faces today. The FY2027 budget should not be balanced through these kinds of one-time windfalls, but rather through sustainable budgeting practices (ensuring that recurring expenditures do not exceed recurring revenues) to lay the foundation for more stable long-term finances.
One of the primary ways Chicago has kicked the can on fiscal issues is through questionable uses of long-term debt. While taking on long-term debt to fund infrastructure and maintenance projects is an essential financing practice used by local governments, debt can be mismanaged and used inappropriately. Best practice indicates that paying back the debt ought to match the projected useful life of the asset being funded. Debt repayment schedules that extend beyond the useful life of the asset or long-term debt issued to pay for day-to-day operations are disfavored practices that shift current costs onto future taxpayers and create long term fiscal challenges. Chicago’s misuse of debt has contributed to the City’s poor financial condition.
There are three key debt maneuvers used in the past that we hope to see avoided in this year’s budget:
- First, the City should avoid backloading debt repayment schedules. Issuing debt where the repayment of the principal is not spread evenly over the debt’s entire lifetime but is instead pushed into the end of that lifetime is bad fiscal practice, as it forces future generations to pay for current capital needs.
- Second, the City should not engage in “scoop-and-toss" refinancing practices. “Scoop and toss” borrowing occurs when the City refinances existing debt and extends its repayment period, reducing debt payments in the near term by shifting some of those costs into future years and increasing the debt burden on future taxpayers. Chicago has a long history of using scoop-and-toss to balance the budget.
- Third, the City should not take on debt to pay for current year operating costs. Debt financing is intended to cover the costs of assets that will provide benefits over time, spreading the payments over the period in which the assets are used. Taking on new debt to pay for today’s budget needs is extremely bad practice.
Chicago violated this third principle last year when it took on $512 million in new debt to close the FY2026 budget gap and cover the costs of retroactive salaries and police misconduct settlements. The debt was also heavily backloaded, with principal payments not beginning until 2029. Once those payments begin, they will cost the City over $100 million each year until the debt expires—further exacerbating the structural deficit in the future. The Mayor’s FY2027 budget proposal should avoid relying on operational borrowing.
Another one-time measure we hope not to see in this year’s budget is asset sales used simply to generate one-time revenue. The City in the past has used asset sales and long-term concessions (i.e., the infamous Chicago Skyway sale in 2004 and the parking meter deal of 2008) in exchange for short-term budget relief, trading away significant future value in the process. Going forward, asset sales should therefore be subject to rigorous analysis of their full long-term costs and benefits to ensure that a one-time payment does not come at the expense of the City’s financial interests over time. And as a general principle, one-time windfalls should be used to address legacy obligations rather than to cover continuing expenses, as the recent parking meter transaction demonstrates by directing its proceeds toward paying down the City’s legacy pension liabilities.
2. Continuation of the Supplemental Pension Contribution
Pension costs continue to be a major pain point in the Chicago budget, with the annually required pension contribution consuming 16.6% of the FY2026 total operating budget. The City’s four pension funds were only 28% funded as of FY2025. A bill passed in the state legislature expanded pension benefits for Chicago police officers and firefighters, including higher salary caps and enhanced annual cost of living increases, which starts to impact the City’s annual contribution to these funds beginning in FY2027.
On top of these contribution levels dictated by State statute, and in an effort to address the low funded ratio and high liabilities of the four Chicago pension funds, the City of Chicago in recent years has begun contributing supplemental amounts in order to limit growth in unfunded pension liabilities. These advance supplemental pension payments have become a central policy lever and important factor in the rating agencies view of the city’s finances.
The Mayor has expressed a commitment to making this additional pension contribution in FY2026. We hope to see continuation of this commitment in the Mayor’s FY2027 budget proposal. The contribution would be $364 million on top of the required contribution of $2.8 billion. These supplemental payments, which the City has been making since FY2023, are helping to slowly whittle down unfunded liabilities. They also demonstrate to credit ratings agencies and investors that Chicago is committed to solving its complex fiscal problems.
The City should make its supplemental pension payment in FY2027. The payment is important not only for reducing the City's substantial unfunded pension liabilities and future pension costs, but also because credit rating agencies have identified the City's advance pension contributions as an important indicator of its commitment to addressing its pension obligations. S&P Global Ratings cited the proposed reduction in the FY2026 advance payment when it revised Chicago's credit outlook to negative, and Fitch Ratings has described the full advance payment as an important stabilizer for its assessment of the City's creditworthiness. Failing to make the FY2027 payment could therefore increase the risk of further credit rating downgrades and higher borrowing costs.
3. Making Meaningful Progress on Cost-Cutting Efficiencies
The Mayor’s administration invested significant resources in identifying opportunities to make City government more efficient during 2025. The City paid consulting firm EY $3.2 million to analyze its finances and identify potential cost-saving and revenue opportunities, and the Mayor established a Chicago Financial Future Task Force (CFFTF), which brought together civic, business, labor and policy leaders to develop recommendations for addressing the City’s structural budget challenges. Together, EY’s report and the CFFTF report identified hundreds of millions of dollars in potential efficiencies and savings. The City subsequently entered into a second $6.72 million, two-year contract with EY in April 2026 to help implement the efficiencies. The Civic Federation will be watching to see whether the FY2027 budget makes meaningful use of this work and moves beyond identifying potential savings toward actually realizing them.
The Mayor’s proposed FY2026 budget included only a small handful of the proposed efficiencies, totaling to just $25 million in savings (miniscule compared to the City’s $12.7 billion budget), half of which were not structural. While the alternative budget put forth by a coalition of alderpersons and ultimately adopted as the final FY2026 budget required an additional $46 million in efficiencies, it did not specify which additional recommendations should be implemented. Since then, there has been no further public disclosure about which efficiencies the City intends to implement, the status of implementation progress, or how much is expected in savings.
Addressing the City’s structural deficit will require the Mayor and City Council to identify ways to operate City government at a lower cost, particularly where savings can be achieved without reducing essential services. The extensive work undertaken over the past year means the City now has a substantial menu of options from which to choose. The FY2027 budget should demonstrate that this work is translating into meaningful, recurring savings rather than a wasted opportunity. We hope to see greater clarity—and crucially, public reporting—on the specific efficiency measures underway, their expected savings, and a timeline for implementation.
4. Commonsense Revenue Increases
The City should not pursue new revenue options until a meaningful effort has been made to identify and implement savings and maximize service delivery within the existing level of available resources. That said, efficiencies alone will not be sufficient to close the budget deficit, nor to cover the long-run legacy costs that Chicago faces in future years. After examining cost-cutting options, additional revenue will likely need to be a part of the picture. As the Mayor and Council deliberate over revenue options, there are several principles and strategies that could help guide those discussions. For example, new revenues should be sustainable, predictable, and sufficient to address ongoing costs rather than provide only short-term budget relief. Local governments should be cautious about relying on volatile sources that could leave future budgets vulnerable to structural imbalance and avoid distorting economic or taxpayer behavior.
The Civic Federation will be watching to see what kind of revenue proposals surface in the Mayor’s budget. Of particular interest is whether the Mayor revisits a proposal for a potential head tax, and whether he continues to rule out increases to the property tax. A majority coalition of City Council members urged the Mayor to avoid using either revenue source. The City has already made extensive use of many revenue sources within its authority as a local government, leaving few options for generating substantial new recurring revenue without authorization from the State. The FY2027 budget process will therefore provide an important indication of which revenue sources the administration and City Council are willing to reconsider and what new approaches they may propose.
Many municipalities set fees for service delivery at a rate sufficient to pay for that service. For example, Chicago’s airport fees fund O’Hare and Midway, and our water and sewer fees fund our water system. But one area where this funding falls significantly short is the garbage collection fee. Chicago’s garbage collection fee of $9.50 per month funds only 40% of our garbage collection costs. The fee generates $69 million per year, while all garbage collection costs a total of $167 million. If raised to match the cost of service, the garbage fee could close a substantial portion of the budget deficit. Most other major cities have substantially higher garbage fees, so Chicago could bring its fee in line with its peers. An increase to the garbage fee was considered by the Council during last year’s budget conflict and recommended by the CFFTF, but ultimately rejected by the Mayor. It should be put back on the table this year. Increasing the fee to a level that would cover garbage collection costs would generate as much as $300 million more per year, as estimated by the CFFTF.
Another avenue that should be considered in this year’s budget process is to index many of the City’s revenue sources to inflation, meaning that fees and fines would automatically increase at the same rate as inflation each year, rather than remaining at the same rate for long periods followed by significant periodic increases. Both the EY report and the CFFTF report recommended indexing most fees and fines to inflation. This would not necessarily generate a large amount of revenue for the City immediately, but would go a long way towards mitigating future budget deficits by adding more stability and predictability into the City’s revenue base.
In line with indexing fees and fines, the City could consider indexing its property tax levy to inflation. There would be both costs and benefits to this move. An automatic annual increase to property taxes would provide more predictability for one of Chicago’s largest and most stable revenue sources, but this could be particularly challenging given the already substantial tax burden in Chicago. Gradual increases in the City’s property tax levy would be less disruptive than allowing revenues to erode over time and then imposing larger increases to catch up. Chicago instituted a short-lived automatic property tax increase under Mayor Lightfoot’s administration, but it was only applied for two years before being cancelled in 2022. This idea deserves consideration as a means to grow revenue at pace with inflation and provide predictability to taxpayers.
5. Stronger City Council Oversight over the Budget
The FY2027 budget process presents an opportunity to strengthen the City Council’s role as a fiscal oversight body. Chicago’s budget process does not currently provide the Council with all of the resources, information and authority it needs to independently evaluate the Mayor’s proposals, develop alternatives and oversee the City’s finances. Last year, we saw these weaknesses play out through contentious and prolonged budget negotiations between the Mayor’s office and City Council. A more effective budget process would give alderpeople timely access to financial information, professional staff and meaningful opportunities to question executive branch officials before major budget decisions are made. Strengthening these capabilities would not only improve the Council’s ability to evaluate the FY2027 budget, but also establish a more effective system of fiscal oversight for future years.
The Civic Federation recently recommended a series of reforms to strengthen the City Council’s capacity and independence in the wake of the FY2026 budget process. As part of the FY2027 budget process, we hope to see advancement on the following priorities, among others:
- Expand and professionalize the City Council Office of Financial Analysis: Empower an independent legislative budget office (currently an under-resourced Council Office of Financial Analysis) by increasing its budget, staffing, and analysis capacities, while ensuring the staff is fully professionalized and has subject matter expertise aligned with the needs of the City Council.
- Professionalize committee staff through hiring standards and guidelines that focus on the skills and expertise needed to support each subject matter area and serve the Council as a whole.
- Establish a clear process for budget negotiations between the Mayor and City Council, led by a chief budgeteer or group of alderpersons, including a timeline for a formal response from Council to the Mayor’s proposal with amendments, and a process for the Mayor to respond.
- Guarantee City Council access to financial information: Legislate by ordinance, City Council's entitlement to all information and analysis from the executive branch, including the Budget Office, Office of the Chief Financial Officer, and Comptroller. Include a corresponding mandatory duty to cooperate in all matters and hearings occurring before the Council and its committees.
These reforms would help establish City Council as an independent fiscal oversight authority rather than a rubber stamp. An adequately staffed and independent COFA could provide alderpeople with the financial analysis needed to assess revenue and expenditure assumptions and evaluate the long-term implications of financial decisions. Professional committee staff and guaranteed access to executive branch information would enable the Council to conduct substantive oversight throughout the year, rather than relying primarily on compressed budget hearings to obtain information.
We hope to see these reforms begin to be implemented in the FY2027 budget cycle. If they are not included in the Mayor’s proposal, City Council has an opportunity and obligation to incorporate appropriate governance and budget-process reforms into the final management ordinance accompanying the FY2027 budget.
Long-Term Goal: Achieving Financial Stability
The goal of the FY2027 budget should be to put Chicago back on a path toward achieving long-term financial stability. That means addressing the structural imbalance rather than repeatedly relying on short-term budget fixes, ensuring the City’s spending is not outpacing revenue, continuing to focus on unfunded pension liabilities, and ensuring sound fiscal oversight over decisions that have potential ramifications for generations. Addressing these underlying financial conditions and legacy obligations is critical to improving the City’s creditworthiness, promoting economic growth, and better enabling the City to respond to future challenges. The same sentiments are echoed in a recent report published by the Civic Committee of the Commercial Club of Chicago, with recommendations focused on addressing Chicago’s serious financial challenges.
Improving the City’s finances and financial management would provide an opportunity to improve the City’s credit rating, which could reduce borrowing costs and provide greater flexibility to finance needed capital investments. Chicago’s credit ratings remain among the lowest of major U.S. cities, and recent downgrades and negative outlooks have highlighted concerns about the City’s persistent structural deficit, operating borrowing, pension obligations, and budget management approach.
The rating agencies have identified these issues as possible factors that could lead to further downgrades, potentially pushing the City’s ratings into below investment grade territory. The rating agencies themselves have pointed to the steps the City can take to improve its creditworthiness, including finding new sources of revenue, reducing spending to close the City’s structural deficit, stabilizing the underfunded pension funds, making the full supplemental payments, and reducing the City’s high debt-per-capita load. Progress on the priorities outlined in this report will be critical to improving the City’s credit ratings.
The FY2027 budget will be an important test of whether Chicago is beginning to move toward greater long-term financial stability. The Mayor and City Council should use the budget process to address the City’s underlying fiscal challenges rather than simply close the gap for another year. Avoiding short-term budget fixes, maintaining the supplemental pension contribution, making meaningful progress on efficiencies, pursuing sustainable revenue options and establishing stronger Council oversight would help put Chicago on a more stable financial path.