The Washington Post editorial board strikes again. This time the target is Mayor Johnson’s plan to fill a massive $1.1 billion budget gap in Chicago with a bunch of new taxes.
The city’s net operating budget increased almost 40 percent between 2019 and 2025, “subsidized in large part by temporary federal pandemic funding that kept the City financially afloat,” according to Grant McClintock of the Civic Federation. “The pandemic is over, but many of the programs and personnel positions established during that time remain, and without the benefit of the federal funding that previously supported them.”
Mayor Brandon Johnson (D) proposes to offset a $1.15 billion shortfall by taxing the businesses that anchor Chicago’s economy, borrowing and more gimmicks.
The mayor proposes to increase the tax on the lease of “personal property” like computers, vehicles and software from 11 percent to 14 percent, and to bring back the city’s “head tax,” which would result in large employers paying $33 per worker, per month.
By making it more expensive to do business or hire workers in the city, these measures threaten Chicago’s future economic growth and tax collections.
There were two versions of Mayor Johnson’s head tax. The first version applied to any company with more than 100 workers and would charge the company $21 a month for each one. But that plan was rejected by the City Council.
City council members recently rejected by a vote of 25-10 Johnson’s $16.6 billion budget plan, which included nearly $600 million in new taxes. A proposed head tax, which would have added a $21-per-month fee per employee on businesses with over 100 workers, was the main point of contention.
Aldermen rightfully noted the measure would only drive away more businesses, kill opportunity and inadvertently push higher property taxes on residents to make up the difference from lost revenue.
How did Johnson react? He pushed for a higher head tax of $33 a month on businesses with over 500 workers.
Even Gov. Pritzker is against the head tax.
One way to do things differently in Chicago would be to cut spending down to a level that they city can manage without federal help. But of course that will never be on the agenda so long as their are big companies to tax. The mayor’s plan also includes a novel social media tax which would barely raise any money and would probably be overturned in court.
The mayor is proposing a first-of-its-kind “social media amusement tax” that would raise an estimated $31 million by taxing social media companies 50 cents per active user over 100,000 in Chicago. The revenue from that tax would be dedicated to funding the city’s mental health clinics and mental health crisis response program.
“We have to do things differently. We can’t keep doing the same thing and being in a budget hole. Social media companies are getting some of the biggest tax breaks, and they’re having a huge impact. They take, and they take, and they take. They’re not paying local taxes. They’re not contributing to the city of Chicago. Why shouldn’t they help contribute?” said Ald. Maria Hadden (49th).
Other City Council members raised concerns that the social media tax might not hold up in court if challenged by companies like Meta or X.
“I suspect there’s a reason no other municipality would do it, despite it would be very popular. It’s just I suspect there’s going to be some significant legal issues with that one,” Ald. Bill Conway (34th) said.
The Post editorial notes that it’s not just Mayor Johnson who is making a mess of things. Some state Democrats are also helping. They recently passed a bill to increase firefighter and police pensions which added billions to the city’s debt.
A bill that will boost the retirement benefits for some Chicago police officers and firefighters has weakened the city’s already dire financial condition, a Wall Street ratings agency warned Tuesday.
An analysis of the bill by the city’s Office of Budget and Management warned the bill “would increase the city’s pension liabilities by more than $11 billion” in the two funds that pay pensions to retired police officers and firefighters.
The warning from S&P, one of a handful of major ratings agencies, comes six months after it downgraded Chicago’s credit one notch to BBB with a stable outlook…
“With the passage of this legislation, the prognosis for Chicago’s long-term fiscal health has weakened,” S&P analysts led by Scott Nees wrote. “Chicago will now face a steepening outyear pension cost curve even as it currently faces a fiscal 2026 budget gap that we already expected would probably be the largest in the city’s history.”
These pensions are already so underfunded that the city recently had to lend the firefighters pension money to cover its current responsibilities without having to sell off assets.
Chicago is stepping in to lend cash to its underfunded pensions so they have enough money to avoid asset sales to cover retirement checks as they wait for property taxes to come in after a computer issue delayed collections.
The city’s decision helps lessen the risk that its four pensions would need to sell assets from their portfolios, which include stocks, bonds, real estate and private equity, to raise cash after a glitch in setting up a new county computer system is delaying hundreds of millions of dollars in property tax earmarked for the funds.
So where are these pension funds going to come up with another $11 billion? Who knows. All of the people who passes this plan will probably be out office before the city becomes insolvent.
Bottom line: Chicago is a beautiful city with a lot of financial (and other) problems. The mayor’s plan to cover a massive budget shortfall is only going to result in more businesses and people leaving the city and taking the tax base with them.
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