Lightfoot’s election year budget for Chicago not a ‘real path’ to recovery and stability – Wirepoints

By: Mark Glennon*

“Chicago is on the real path to financial recovery and financial stability,” Mayor Lori Lightfoot said in the new Budget forecasts 2023. “We have rid the city budget of decades of deferred debt. We now live within our means,” she said in a related speech at a luncheon to municipal bond investors at a conference last week.

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

Here are the main reasons why Cahill is right, as we see:

First, Chicago’s true financial picture is clouded by extraordinary sums of federal government money doled out under the guise of pandemic relief, as is the case for the state of Illinois and most government units. in America. Chicago alone was awarded $1.9 billion of direct aid under the US bailout, much of which went directly or indirectly to debt reduction, eliminating short-term problems. $152 million remains to be spent, which will be counted as revenue in 2023. The state as a whole, including the private sector, has received nearly $200 billion in federal aid, helping to inflate state taxes and premises. None of this will be repeated.

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

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

Nothing happened, but now, somehow, she would like us to believe that the city is on a real path to stability and living within its means.

Chicago’s four pensions will cost the city $2.4 billion in 2023. (That’s the city’s total contributions beyond its corporate fund alone). This number will continue to rise because the city is now on a so-called “actuarial-based” funding schedule that is supposed to bring pensions to 90% of what they should be by 2055. Chicago has the worst pension financing situation of the 20 largest cities in America, according to S&P Global Ratings. Its four pensions are each among the worst among 61 other cities, according to a different report from Equitable Institute.

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

Third, crime has now become a primary fiscal problem for the city, beyond human tragedy. It’s hard to imagine how it will be brought under control without a lot more money going to the police, which are already overwhelmed and struggling to maintain their numbers. A serious budget would include this funding.

Fourth, working from home remains a serious threat to downtown viability, as in other cities. True daily office occupancy in downtown Chicago hovers around 41% according to Kastle Systems Barometer, which measures actual occupancy by swiping the security card. Unless the true occupation reverts to something approaching historic standards, neither will many of the city’s revenue streams.

Fifth, despite federal assistance, the new projected budget still shows expenditures exceeding revenues by $128 million for next year. And it will be much worse. This deficit will reach $473 million in 2024 and $554 million in 2025, according to projections.

Overall, the new budget would total approximately $5.2 billion, reflecting a 5.8% increase in spending over 2022. focus the projection. It covers most basic urban services, but excludes special revenue sources and separate urban entities such as airports.

Interestingly, bond investors and analysts at last week’s conference would have had a brighter view of the city. They “gave Chicago high marks for its use of federal COVID-19 relief and noted concrete signs of fiscal progress,” their trade publication states, The bond buyer, although crime, long-term return-to-work trends and debt are hampering upward momentum.

I understand why they’d be happy if federal “pandemic relief” went largely to debt reduction, but I don’t know 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, whatever the reasons. If the city puts on a compelling show for them, good for the city.

*Mark Glennon is the founder of Wirepoints.

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