By: Mark Glennon*
It’s truly difficult to understand how Mayor Lori Lightfoot could have said what she did in her April 1 press conference. It was crazy enough to make you think it must have been an April Fools’ jest.
With the Federal Reserve Bank predicting that unemployment may go to 32% and most of the nation shut down, Chicago now faces its most difficult financial situation since the Great Depression.
No worries, Lightfoot said. She has it all covered in her budget. Let’s go through what she said then review a few facts.
The Chicago Sun-Times summarized her comments nicely:
For the umpteenth time, she noted “no one revenue stream is more than 13 percent” and all of the “economically-sensitive” revenues together total just 25 percent.
“I’m not gonna sit here and say there’s not gonna be some impact. There will be. But I think we’re very well-situated to weather this storm because we anticipated in our budget forecast for 2020 that we would experience in this year some kind of economic downturn,” she said.
“Now, nobody anticipated that it would be due to a pandemic. But we built the budget this year to be able to be responsive to that kind of worst-case scenario.”
She also ridiculed former Chicago Budget Director Paul Vallas for writing that Chicago should be adopting a “war time financial plan. She said he’s “desperate to be relevant” and probably “hasn’t touched a budget in years. He can’t be taken seriously, she said.
Let’s start with her standard line about no one revenue stream being more than 13% of total revenue. True, but they are all getting hammered by the mass shutdowns. Here are the largest sources of city revenue, from the Civic Federation:
Here is what is happening to those sources including some not itemized in that chart:
• Property taxes, usually regarded as the most stable source, were going delinquent even before the pandemic at a rate 42% above last year for reasons that the Cook County treasurer, who collects Chicago’s taxes, called “beyond human imagination.” Delinquencies will now skyrocket.
• Sales taxes were already sold off to secure bondholders under the city’s new “securitized” bond scheme and they will plummet with so much retail now closed.
• Chicago’s budget banked on $129 million from hotel taxes alone, but Chicago hotels are now just 6% occupied.
• Income taxes the state partially shares with the city will collapse.
• Amusement taxes of $194 million will evaporate as sporting events and theaters remain shut down.
• Transportation taxes worth $388 million – from ride-sharing to gas to auto rentals – are disappearing as both tourists and residents restrict their travel around the city.
• Water and sewer fees will no doubt go delinquent in overwhelming numbers as unemployment and pay cuts soar. Same for utility taxes and fees.
• Airport rates and charges? Airlines and airports are operating at less than 10% of normal and will get by, if at all, only through the pending federal aid.
• Motor fuel taxes? Driving has all but vanished and gasoline prices, on which the taxes are proportional, have plummeted.
Lightfoot said she built this year’s budget to be responsive to this kind of worst-case scenario.
That’s madness! Chicago was already rated, along with Detroit, as least able to deal with even an ordinary recession. There’s nothing whatsoever in the budget to cover any downturn. In fact, the budget relies on a huge, one-time revenue influx, unrealistic hopes of more revenue from a Chicago casino and higher real estate transfer taxes that Springfield has yet to authorize. Nor has the city ever offered a plan for dealing with the scheduled up-ramp in pension contributions it faces.
Paul Vallas was absolutely right to call for a war time financial plan. Lightfoot’s ad hominem response has become all too routine for her.
We cheered Lori Lightfoot for defeating The Machine, for her triumphs over personal hardship and for her genuine commitment to ethics reform, but she’s clearly incapable of dealing with this crisis. The notion that tax revenues crash when the economy crashes seems beyond her.
She has no concept of the scope of the fiscal crisis at hand.
*Mark Glennon is founder of Wirepoints