Only two days after the city’s February 26th elections, Standard & Poor sounded an alarm that raised the stakes in the mayoral race and the many aldermanic races that are now in their final round, including mine. The ratings agency warned that Chicago could be headed for a ratings downgrade in the absence of fast action to address our financial challenges.
At a time when the middle class is disappearing from our city, S&P’s warning is a powerful reminder that leadership and ideas matter more than ever. Residents are increasingly squeezed by rising property taxes and the cost of child care, transportation, and health care. Many families are a medical emergency or job loss away from a real crisis. They deserve better.
The first big test will come almost immediately for the next mayor and city council in the form of a roughly $400 million deficit that will need to be filled by November. By 2023, we are facing a nearly $1 billion increase in the city’s required pension payment. I believe that it is critical that we address these challenges over the next four years without raising property taxes or imposing new taxes like the city of Chicago income tax proposed by my opponent Matt Martin.
Here are a few ideas for our next city leaders.
Government Reform. Before we look to any new taxes, we need to show that we are making every effort to tighten our belts. Every idea should be on the table, including reducing the duplicative layers of government that exist between the City of Chicago and Cook County, revamping oversight of police overtime, and consolidating our four city pension funds into one. And City Hall must work with the Inspector General to audit the $100 million worker’s compensation program recently removed from Alderman Ed Burke’s Finance Committee to identify savings.
TIF Reform. We will need to dig deep into our tax increment finance (TIF) districts to free up more funds. We should seek a large TIF surplus declaration – this is when the city returns unused TIF dollars to the original taxing governments – for the 2020 budget with a goal of exceeding $250 million, up from $175 million in the 2019 budget. By law, one-fifth of these funds would return to the city to help address its deficit. Moreover, as Daniel Kay Hertz of the Center for Tax and Budget Accountability (CTBA) writes, another $250 million in 29 TIF districts are set to expire by 2022, creating an opportunity to reduce property taxes while still dedicating some portion of this revenue to our growing pension obligations. For example, the city could move to capture more half of this expiring levy – let’s say $150 million – and dedicate these funds to pensions while still reducing property taxes for homeowners by $100 million.
Refinancing More Expensive Debt. Just as homeowners can take advantage of favorable rates to refinance their mortgage to reduce their monthly payments, there are a few similar options for the city to consider. First, we should have a serious conversation about the pension bond proposal that outgoing Mayor Rahm Emanuel first proposed last fall. Here’s how it would work: the city would refinance a portion of its current pension debt at an interest rate lower than it is paying now to reduce the size of its annual pension payment. The cheaper debt could be secured by either the city’s share of certain state revenue streams or by the revenue freed up by the expiring TIF districts I mention above. As Ralph Martire and Daniel Kay Hertz of the CTBA recommend, a pension bond could be a viable option if the borrowing is dedicated entirely to helping address future liabilities. There are risks with this path but, as the Civic Federation suggests, we must have a full public discussion.
Second, we will continue to realize the debt service savings from securitizing nearly $3 billion in state sales tax receipts over the past 18 months. Via this program, authorized by the state in 2017, the city has refunded its more expensive sales tax revenue and general obligation bonds at a significantly lower rate by borrowing against a portion of its share of the state sales tax. The city anticipates achieving $700 million in budgetary savings through reduced debt service costs over five years. While we should be cautious about using this tool to refund additional debt going forward because it takes future revenue off the table, the bonds that have already been authorized will provide budget relief over the term of the next mayor.
Springfield. And finally, there can be no lasting solution to our financial challenges without Chicago and its sister cities across the state receiving their fair share of Governor J.B. Pritzker’s proposed progressive state income tax, recreational marijuana, and expanded gaming options. Under the Governor’s current proposal for a progressive state income tax, local governments like Chicago will receive the same roughly 6% share they currently receive from other state revenue sources. This is not enough. Our next mayor must develop a strategy in concert with cities across Illinois to ensure that we all receive a significant portion of new Springfield revenue to help address our pension challenges.
Too many of the voters I have spoken with over the past year are poised to leave the city. We must do more to keep them here and stabilizing our finances is an important start.
Michael Negron is an attorney and candidate for alderman in the 47th ward. He previously served as policy director to Mayor Rahm Emanuel and in the White House Office of Management and Budget under the administration of President Barack Obama.