October 25, 2022
The Civic Federation supports Mayor Lightfoot’s proposed FY2023 budget of $11.8 billion across all local funds, excluding grants and capital. The City of Chicago’s economic recovery has generated significant revenue growth in the current fiscal year and the projected continuation of those trends next year will allow it to balance the budget without a general property tax increase and still make a $242 million supplemental pension payment. This is generally good news for taxpayers and the financial health of the City overall. However, the Federation retains concerns that the budget’s use of one-time revenue sources could cause future budget difficulties, as would a potential recession in the next year.
The City initially proposed a 2.5% increase in the property tax levy in the Budget Forecast released in the summer, but the proposed FY2023 budget foregoes the City’s planned annual inflationary increase because several other revenue sources have grown so much faster than expected even a few months ago. Chicago still plans to capture property tax revenue growth from expiring TIF increments and new property, which are expected to generate $25 million. The Civic Federation supports the City’s decision to avoid an inflationary property tax increase, providing much-needed relief to taxpayers.
The FY2023 budget proposal represents an increase in spending of 10.8% from the adopted FY2022 budget of $10.6 billion across all local (operating) funds. Corporate Fund expenditures are projected to increase by 11.2% due to increased personnel and pension spending in FY2023. Pension fund contributions are increasing by 14.3%, or $334.4 million, which includes the proposed supplemental pension payment. The Federation believes the supplemental pension payment is a prudent use of higher-than-expected revenues. Fiscal Year 2023 additionally represents the second year that all four pension funds will be funded based on actuarial calculations.
In addition to improved revenue projections and a smaller initial budget gap than previous years, as well as funding its pensions more sustainably, the City has made important progress in increasing its budgetary reserves and ending practices like borrowing for settlements and scoop and toss. These moves recently resulted in the City’s first GO bond rating upgrade in over a decade and are praiseworthy. However, the City’s remaining financial challenges, such as maintaining its pension funding levels and high annual debt payments, mean its ratings remain below those of peer cities. While the City maintains that projected revenue growth in FY2023 and beyond will prevent a budget cliff caused by the end of federal revenue support, federal ARP funds are not the only one-time revenues in the FY2023 budget, and the Federation cautions that these nonrecurring revenues and/or a recession next year could make balancing future year budgets more difficult.
As in prior years, Civic Federation offers several recommendations to improve the City’s budget transparency in this report. The Federation also makes recommendations in the area of public safety this year given its increased importance as Chicago and most other regions of the US, rural and urban, continue to face increased levels of gun violence. The Civic Federation calls on the Mayor and City Council to increase transparency related to policing around the cost of implementing the consent decree and other public safety initiatives, and to improve communication regarding the Department’s compliance in the consent decree’s implementation. We also call for the publication of a study on police staffing allocation.
The Civic Federation offers the following key findings on Mayor Lightfoot’s proposed FY2023 budget:
- The projected net appropriations for FY2023 total $11.8 billion. This is an increase of $1.2 billion, or 10.8%, over the adopted FY2022 net appropriations of $10.6 billion;
- The proposed Corporate Fund (general operating) budget of $5.4 billion represents a $547.1 million, or 11.2%, increase from $4.9 billion in FY2022;
- Pension contributions to the four City pension funds will total nearly $2.7 billion in FY2023, an increase of $334.4 million, or 14.3%, from the prior year. The pensions are funded with $1.4 billion in property tax revenue, $644.9 million in transfers from the Corporate Fund, $266.3 million from the water-sewer tax, $303.7 million from the Enterprise and Special Revenue Funds and $40 million in upfront casino revenue. The City is further allocating $242 million in supplemental pension funding for FY2023 to be spread across all four funds.
- Personnel positions across all local funds will increase by 834 from the prior year to a total of 34,710 full-time equivalent (FTE) positions proposed in FY2023. The largest increase, 439 positions, will be within the Infrastructure Services program area to support additional positions in the Department of Water Management;
- Public Safety personnel make up the largest portion of budgeted positions with 20,625 FTEs, or 59.4%. Of that total, the Police Department accounts for 14,005 budgeted positions. Personnel within the Public Safety program area has decreased by 7.7% since 2019. Budgeted FTEs in the Police Department have decreased by 849, or 5.7%, over the same period;
- While the number of budgeted personnel positions has decreased from 35,413 to 34,710 over the past five years, personnel services appropriations (which account mostly for salaries and other costs associated with pay) have increased from $4.1 billion in FY2022 to $4.3 billion in FY2023;
- Personnel services appropriations within the Corporate Fund are projected to increase from $3.0 billion in FY2022 to $3.3 billion in FY2023;
- The City’s FY2023 gross property tax levy is approximately $1.7 billion, an increase of $25 million over the prior year;
- The City had $11.6 billion in outstanding tax-supported debt at the end of FY2021. Another $16.3 billion in debt supported by enterprise revenue (water-sewer and airport revenues) was outstanding as of the same period;
- Over the ten-year period from FY2012 through FY2021, the City’s total net direct debt decreased from $7.9 billion to $6.3 billion. During this same period, direct debt per capita decreased by 21.5% from $2,945 to $2,311; and
- Total long-term liabilities, including net pension liability, increased by 1.3%, or $568,232, in the two years between FY2020 and FY2021, from $44.3 billion to $44.8 billion.
The Civic Federation supports the following initiatives and elements of the City of Chicago’s proposed FY2023 budget:
- Supplemental pension payment of $242 million and commitment to future supplemental payments;
- Restraint in the property tax levy; and
- Improvements in the City’s financial sustainability and debt ratings.
The Civic Federation has concerns about the following issues related to the City of Chicago’s proposed FY2023 budget:
- Use of nonrecurring revenues in the budget;
- Lack of transparency about public safety investments and costs associated with implementation of the federal Consent Decree;
- Pension and debt costs will require a large percentage of City resources for decades to come;
- Lack of departmental cost of services data due to the Finance General category;
- Statutory reliance on gaming revenues to fund police and fire pensions; and
- Future viability of the Chicago Transportation Authority (CTA).
The Civic Federation offers the following specific recommendations as a guide to improving the City of Chicago’s financial management:
- Improve transparency and communication regarding public safety spending, including how compliance with the federal Consent Decree impacts the Police Department’s personnel and spending levels;
- Publish a staffing allocation study of the Chicago Police Department;
- Work with City and State agencies to improve the Chicago Transportation Authority (CTA);
- Expand the information contained in the Budget Forecast;
- Find stable pension funding sources to supplement uneven casino revenue;
- Work with the State of Illinois to explore consolidation of Chicago’s four pension funds;
- Include finance general costs in departmental budgets;
- Include actual past year expenditures and revenues in budget documents; and
- Re-evaluate the use of TIF funds.