Dear Neighbors,
Over the next few newsletters, I will be reporting detailed information about the city budget. As I explained in my first newsletter on the subject, I have been skeptical about several aspects of the budget, and have given close scrutiny to what has been proposed.
Today's newsletter will detail the overall situation, and steps the city has taken to reduce costs. The next newsletter will discuss revenue and other financial options for the city.
Background: Sharp Declines in Revenue Due to COVID . . .
As I discussed in September, Chicago faces an unprecedented spending gap: $1.2 Billion in 2021 - a direct result of dramatic revenue declines due to COVID-19.
For example, hotel, city sales, communications, amusement, real estate transfer, and parking taxes are expected to plummet by $380 million for 2021. Fines, penalties and fees for various services will fall $403.6 million for a total reduction in revenue of $783.2 million dollars.
These revenue losses, which have had a devastating impact on our economy, are consistent with what cities and states across the country are also experiencing.
. . . And Mandated Increases
The city had anticipated that for 2021, $421.1 million needs to be raised to meet mandatory pension payments, borrowing costs, and contractual pay increases that were anticipated prior to COVID-19. Taken together with the lost revenue, there is a total of $1.2 billion in a combination of savings and revenues needed to balance the 2021 budget.
Had COVID not occurred, these new expenses would have been paid for with the revenue that we have lost. In fact, even with the extra spending required to meet the public safety needs this year, the city would have broken even or had a surplus for 2021 but for the pandemic.
Federal Bailouts?
The City had hoped that a new administration would make substantial investments in the economic recovery to help cities, which are the drivers of the nation’s economy. Unfortunately, the situation in Congress is not as favorable as we might have hoped. That means we can’t count on substantial assistance next year. In any event, Chicago is required to pass a balanced budget by year-end, so should we obtain federal funds, the budget will be amended.
Balancing the Budget: Performance Improvements and Cost Reductions by the City
Many have suggested, and
Crain's editorialized, that "
the Mayor must assure [the taxpayers] that her administration is feeling the pain, too." I agree, and scrutinized the budget to see whether the city has made adequate cost cuts and made efficiencies to bridge this gap.
The City has made $430.9 million in improved fiscal management and non-personnel savings, including a renegotiated health care contract, adding additional parking meters, better management of accounts receivables, enhanced enforcement of certain fees, and improved collections.
But I looked more qualitatively for improvements that demonstrate that the city is trying to make government more cost-efficient. Here is what I found:
- The city has improved its oversight of the parking meter contract so that, for the first time since the deal was agreed to in 2008, the city will not owe the parking meter company a so-called “true-up” payment.
- The city has also improved its oversight of TIF programs, saving $80 million dollars thus far.
- The merger of departments responsible for maintenance of city assets and IT is saving $1 million/year.
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When Mayor Lightfoot took office in May 2019, she embraced the work on absenteeism that I spearheaded in 2016. Absentee rates hit their lowest levels in the last quarter of 2019 - and then the pandemic hit. The City is in place to complete the transition to biometric time and attendance that was started in the last administration.
- The Mayor created an auditor of vendor performance and is improving its contracts. For example, the old recycling contract had no penalties for non-performance. The new contracts will have penalties for missing pickups and for failing to respond to 311 calls.
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Most impactful, the Mayor prioritized changing the most egregious parts of the police contract that imperil police accountability and have led to a billion dollars in legal costs and court judgments for poor policing. The implementation of these changes - which will take time - will lead to savings of hundreds of millions of dollars.
These are the types of changes that you demand for accountability in the way the City does business. This administration seems interested in improving the way the city runs. This is the type of change I have been seeking since taking office in 2011.
I can accept the $430.9 figure as part of the equation to balance the budget.
Personnel and Layoffs
When the pandemic started, the city instituted a hiring slowdown, creating many vacancies. To minimize layoffs, the city proposes to eliminate vacancies. The proposed budget eliminates 1,857 vacancies. Eliminating these positions equals reducing the workforce by 5% and saves $106.3 million dollars.
These workforce reductions include more than 600 police officers, saving $33 million. Every year, about 400 police officers retire. This budget assumes that those officers will not be replaced next year. While public safety is my top priority, as a practical matter, the police academy will not be able to train that many officers next year due to COVID. The academy will be able to train about 250 new recruits, and those will be hired, which will cost about $14 million in salaries alone.
All told, the workforce in public safety (Police, Fire and 911 Center) will decrease by 7%.
In non-public safety areas, the eliminated vacancies are in departments on which we rely: Streets and Sanitation and CDOT (70 positions - 3% of staff), and Business Affairs (17 positions, 10% of its staff; assistance to business and enforcement). The Department of Cultural Affairs (DCASE) had its budget slashed 50%, understanding that COVID has made many of the events which we enjoy impossible.
The city is also seeking five furlough days from higher-salaried non-union workers, which represent only 10% of our total workforce. I will take 5 days off without pay next year, as will about 1100 others.
In our Finance committee hearing yesterday, our most veteran aldermen asked whether the city could eliminate more positions (or layoffs) and avoid a possible property tax hike.
The proposed $94 million property tax increase is equal to about 1640 jobs, or another 5% of the city staff. If applied equally across departments, that would mean that another 985 police, fire and 911 staff would have to be laid off (60% of city staff work in police, fire and OEMC), and smaller departments would be even more impacted. If public safety is prioritized and say only 2% reductions were made in police and fire, that would result in reducing Streets and Sanitation, Transportation, and other departments on which we rely for constituent services far more - resulting in even fewer constituents services and the degradation of our city.
In fact, when asked in writing how to reduce the time to complete 311 requests, CDOT Commissioner Gia Biagi said, "Fill the 128 vacancies in the Department's budget."
These cuts will be difficult and will impact the delivery of city services to some degree. Hopefully, our economy will recover quickly to restore revenues such as hotel fees and amusement taxes. I serve on the tourism economic recovery team for the city and we will be meeting in December to continue to discuss how to restart our Chicago economy.
Pension Reform
There is no doubt that the most significant driver of our financial issues is our pension costs. I have written about the reform since I was elected in 2011 - and in 2014,
reform passed. But it was ruled unconstitutional in 2015 by the Illinois Supreme Court. As a result, we have had to make larger and larger payments. In 2020, we budgeted $335.6 million from our regular corporate fund (i.e. not property taxes), to make some of the pension contributions - and that went up in smoke when we lost $800 million in revenue due to the pandemic.
I favor pension reform, and the placing a pension reform referendum on the ballot. But until we do that, we face an important quality of life issue: do we simply cut back our government so that we can't have basic constituent services, or police? Or do we find ways to fund the government we want and plan for a recovery from this unusual occurrence?
More tomorrow on that.
