This is What Chicago Residents Can Expect as Mayor Works to Address $1 Billion Budget Shortfall

Mayor Johnson considers hiring freezes, service reductions to address fiscal deficit, migrants will continue to be funded, property tax increases not ruled out

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CHICAGO - The City of Chicago is grappling with a nearly $1 billion budget deficit for the upcoming fiscal year, raising concerns about potential cuts to public services and the possibility of new revenue measures. Mayor Brandon Johnson's administration is exploring various strategies to address the shortfall, including a temporary hiring freeze and reductions in city spending. As the city prepares for the upcoming budget cycle, these measures are part of a broader effort to stabilize Chicago's finances amidst rising costs and declining revenues.

The projected deficit for fiscal year 2025 has sparked debate among public policy experts about the best approach to close the gap. Justin Marlowe, a research professor at the University of Chicago Harris School of Public Policy, says that the Mayor might implement a temporary hiring freeze and reduce certain programs that were introduced during the COVID-19 pandemic. These steps, while impactful, are seen as less severe than alternatives such as significant property tax increases or major cuts to essential public services.

Mayor Johnson had already floated the idea of a hiring freeze in response to the budgetary challenges prior to announcing the size of the deficit. During a briefing with reporters, Johnson’s top deputies outlined a range of potential cost-cutting measures, including a slowdown in hiring, reduced spending, and possibly freezing new hires altogether. These measures are aimed at offsetting an anticipated $222.9 million deficit for the current year, driven by lower-than-expected revenues.

The Chicago Police Department, already facing a shortage of officers, could be particularly affected by any hiring freeze. Budget Director Annette Guzman noted that some positions within the police and fire departments are mandated by federal consent decrees and union contracts, complicating efforts to reduce staffing levels in these areas. Guzman emphasized the importance of balancing public safety needs with the financial realities facing the city.

The nearly $1 billion budget gap for next year is driven by a combination of rising pension and labor costs, as well as ongoing revenue shortfalls. Despite some savings achieved this year, the city’s corporate fund is expected to end the year with a $223 million deficit, exacerbated by a $417.7 million shortfall in revenue. This decline is largely attributed to a drop in personal property replacement taxes and the refusal of Chicago Public Schools (CPS) to make a pension payment that the city had been counting on.

As the city works to close the budget gap, Mayor Johnson is likely to face difficult choices about how to allocate limited resources. The city is legally prohibited from operating with a budget deficit, meaning that Johnson will need to either cut spending, raise taxes, or find new sources of revenue to balance the budget. The $982 million shortfall for fiscal year 2025 is comparable to the $1.2 billion gap faced by former Mayor Lori Lightfoot during the COVID-19 pandemic.

Johnson’s budget proposals are expected to reflect his commitment to progressive policies, although the magnitude of the deficit may limit the scope of new investments. The mayor is set to present his budget plan in October, where he will outline how he intends to address the fiscal challenges while advancing his policy agenda.

By 2027, the projected deficit is expected to range from $702.6 million to as high as $1.9 billion, depending on various economic factors. These projections do not assume any increases in property taxes, although Johnson has not ruled out the possibility of raising taxes to close the gap. He has previously criticized property tax hikes as a "lazy" approach to budgeting and has expressed a preference for finding more progressive revenue sources.

One area of uncertainty in the budget outlook is the funding required to address the ongoing migrant crisis in Chicago. The city currently plans to allocate $150 million to support asylum seekers next year, a figure that could increase depending on the level of state and federal support. Johnson has already returned to the City Council to request an additional $70 million from city reserves to continue providing assistance to migrants.

The refusal of CPS to make a $175 million pension payment adds another layer of complexity to the city’s budget woes. CPS officials have argued that the school district is facing its own budget deficits and cannot afford the pension contribution. For decades, the city had paid the entire contribution to the municipal pension fund, but in 2020, Lightfoot began shifting some of the costs to CPS. Johnson has indicated that this financial disentanglement is necessary but acknowledges that it is a complex process.

The CPS pension payment dispute is expected to continue into next year, with the city counting $175 million as part of this year’s deficit and another $175 million as part of next year’s shortfall. Johnson has stated that he expects CPS to meet its pension obligations, but the uncertainty surrounding this payment further complicates the city’s budget planning.

To generate new revenue, many of Johnson’s campaign proposals would require approval from the state legislature. Earlier this year, a City Council subcommittee focused on revenue generation discussed various strategies, including the legalization of video gaming and the taxation of professional services. These options are being considered as part of the broader effort to close the budget gap without resorting to steep property tax increases.

In addition to the ongoing budget challenges, the city is also facing pressure to speed up the allocation and spending of federal pandemic relief funds. The city must allocate hundreds of millions of dollars to community programs by the end of the year, with all relief funds required to be spent by the end of 2026 to avoid returning unused money to the federal government.

As the budget process unfolds, the city will also need to address the financial impact of the upcoming opening of Bally’s permanent casino in 2026. Revenue from the casino is earmarked for the city’s underfunded police and firefighter pensions, but revenue from the temporary casino at Medinah Temple has so far fallen short of projections. The city plans to make a $272 million advanced pension payment next year, a move that has been praised by budget watchdogs.

Voters have already rejected Johnson’s most prominent attempt to raise taxes through a one-time levy on the sale of high-value properties. The "Bring Chicago Home" campaign, which sought to generate $100 million annually for homelessness prevention, was defeated at the ballot box, marking a significant setback for Johnson in his first year in office.

Despite these challenges, Johnson remains committed to finding ways to address the city’s fiscal issues. In April, the City Council approved a $1.25 billion borrowing plan to support affordable housing and economic development, a key part of Johnson’s agenda. The plan relies on the expiration of controversial tax increment financing districts to fund these initiatives.

The upcoming budget season will be critical for Johnson’s administration, as the mayor works to balance the city’s financial needs with his progressive policy goals. After Johnson releases his proposed budget, City Council members will hold a series of hearings to review the plan, with a vote on the finalized budget expected in November. By law, the city’s budget must be approved by December 31.