Good Job on the Finances Illinois. Next Up, Chicago

Good Job on the Finances Illinois. Next Up, Chicago

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Next up is the city of Chicago, which typically begins its budget process in August and was allocated $1.8 billion in general aid from the American Rescue Plan (ARP). Like the state, the city has a long history of high debt levels, underfunding pensions, and structural budget deficits. Like the state, Chicago has a political environment that too often leads to the easy path instead of the responsible path.

Already, local lawmakers are positioning for a major debate on how best to spend non-dedicated ARP dollars. While the desire to spend on programs to address Chicago’s many social and economic needs is understandable, using one-time federal dollars for programs that will increase ongoing expenses, with no ongoing revenue source to pay for them, will only lead to more deficits and taxes down the road. 

The city took on $465 million in short-term debt at the end of 2020 and, facing a remaining $965 million deficit for 2021, will likely have to borrow another $500 million if federal aid is not used to cover the gap. That’s close to a billion dollars just to balance this year’s budget, and city officials expect to begin the 2022 budget debate facing down another billion-dollar gap. Closing these budget gaps would use up much of the ARP general aid funds. And in addition to the short-term burdens facing Chicago, the city’s unfunded pension liability is more than $30 billion and climbing.

That being said, let’s remember that the dollars allocated in these budgets pay for the critical services and programs, like support for community services, economic development, public safety, and infrastructure, that we all want the City to provide. 

Let’s also remember that, in addition to the money coming to the city as general aid, the city and its sister agencies have received billions in funding from Washington to use for specific purposes, funding programs such as emergency rental assistance, homelessness assistance, and business relief.  And the Chicago public schools received $1.8 billion in pandemic relief. 

The bottom line is that the city has resources to pull itself out of the COVID-induced recession, address important social needs, and address its substantial overhang of deficits. If we use the money wisely, we should be able to avoid increases in property taxes, pay down some debts, and put Chicago on a sustainable financial footing that will enable the city to grow and provide vital city services for its people in the long run. 

Stable finances are the foundation for every other area of investment—making everything else possible. Chicago has great assets as a location for business investment, including a talented, diverse, and well-educated workforce; a world leading transportation infrastructure; world-class research and higher education institutions; and leadership in industries from logistics to healthcare. But our city’s finances are a deterrent to employers deciding whether to expand or locate in Chicago.

Both the mayor and the governor are in their first terms in office. They inherited both fiscal policies and practices shaped over decades by elected officials from across the political spectrum—and the need to change them. There are so many legitimate needs in our city and state that the desire to spend money on immediate programs is real and palpable. But that desire to spend on worthy programs, unchecked by recognizing our fiscal limits, is what got us into this situation in the first place.

Both the mayor and the governor have sent the right signals about wanting to use the federal relief money responsibly and meet our other obligations. And this year’s state budget delivered on that. The city and state can create a new narrative of transparency and fiscal restraint, move beyond annual budget crises, and begin planning for the long-term. One way or another, we need to manage our debts and align spending with revenues for the long term. 

Kelly R. Welsh is president of the Civic Committee and of the Commercial Club of Chicago.

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