Lightfoot’s Election-Year Budget For Chicago Is No ‘True Path’ To Recovery and Stability – Wirepoints

By: Mark Glennon*

“Chicago is on the true path to financial recovery and financial stability,” Mayor Lori Lightfoot says in the city’s new 2023 Budget Forecast. “We have cleared the city’s budget of decades of deferred liabilities. We are now living within our means,” she said during a related keynote luncheon address to municipal bond investors at a conference last week.

Sorry, Mayor, but Joe Cahill at Crain’s put it succinctly: “A more accurate description would call the forecast a mixture of helpful short-term factors and election-year hopium,” he wrote.

Here are the major reasons why Cahill’s right, as we see it:

First, Chicago’s true financial picture is smoked over by extraordinary amounts of cash from the federal government dispensed under the guise of pandemic relief, as is true for the State of Illinois and most every government unit in America. Chicago alone was allocated $1.9 billion of direct assistance under the American Rescue Plan, much of which went directly or indirectly to debt reduction, taking the burner out from under near term problems. Still to be spent is $152 million that will be counted as revenue in 2023. The state as a whole, including the private sector, has received nearly $200 billion of federal assistance, helping swell state and local tax rolls. None of that will be repeated.

Second, nothing whatsoever has been done about the city’s primary structural fiscal problem — pensions.

Consider this: Two years ago, at the very same investor conference as last week’s, Lightfoot said she intended to “force a solution” to the pension problem, which she correctly said was “the biggest problem” facing city finances. The pension system was “unsustainable in its current form,” she said

Nothing happened but now, somehow, she’d have us believe the city is on a true path to stability and is living within its means.

Chicago’s four pensions will cost the city $2.4 billion in 2023. (That’s total city contributions from beyond just its Corporate Fund). That number will continue to grow because the city is now on a supposedly “actuarially based” funding schedule that’s supposed to get the pensions to 90% of what they should have by 2055. Chicago has the worst pension funding situation of the 20 largest cities in America, according to S&P Global Ratings. Its four pensions are each next-from-worst among 61 other cities, according to a different report from Equable Institute.

That liability is an anchor around Chicago’s neck, making it an outlier among other cities, indefinitely strangling taxpayers and dragging down the quality of the city’s services.

Third, crime has now become an overriding fiscal issue for the city, aside from the human tragedy. It’s difficult to see how it will be brought under control without far more money going to the police, who are already overburdened and struggling to maintain manpower. A serious budget would include that funding.

Fourth, work-from-home remains a grave threat to the viability of downtown, as in other cities. The true, daily occupancy rate of downtown offices in Chicago hovers around 41% according to Kastle Systems’ barometer, which measures true occupancy by security card swipes. Unless true occupancy returns to something approaching historical norms, many of the city’s revenue sources will not, either.

Fifth, despite the federal help, the new projected budget nevertheless shows expenses exceeding revenues by $128 million for next year. And it will get much worse. That deficit will rise to $473 million in 2024 and $554 million in 2025, the projections says.

Overall, the new budget would total about $5.2 billion, reflecting a spending increase of 5.8% over 2022. That’s for the city’s Corporate Fund, on which the projection is focused. It covers most core city services but excludes special revenue sources and separate city entities like the airports.

Interestingly, bond investors and analysts at last week’s conference reportedly had a more cheery outlook about the city. They “gave Chicago high marks for its use of federal COVID-19 relief and noted concrete signs of fiscal progress,” says their trade publication, The Bond Buyer, though crime, long-term return-to-work trends, and debt pose headwinds to the upward momentum.

I get why they’d be happy that federal “pandemic relief” went largely to debt reduction, but I’m at a loss for what concrete signs of fiscal progress they see. Still, it’s probably true that Chicago bonds remain safe from default for a few years, which is probably their main concern, regardless of the reasons. If the city put on a convincing show for them, good for the city.

*Mark Glennon is founder of Wirepoints.