Chicago will end the year in the red for the second straight year after Mayor Brandon Johnson suffered a devastating blow from the city’s school board, which this week balked at authorizing a short-term, high-interest loan to reimburse the city for a $175 million pension payment for non-teaching school employees.
The continued defiance by a partially elected Chicago Board of Education still controlled by Johnson’s own appointees will force the city to end 2025 with a $146 million shortfall and make what the mayor called the “hard choices” needed to erase a nearly $1.2 billion budget gap in 2026.
“They passed a budget that didn’t have cuts to the classroom — or as far as what we can tell. That’s the most important thing here,” Johnson said during a virtual budget briefing Friday.
“My job and my responsibility … is to make sure that the city’s budget is balanced — that it’s moving toward again building a more equitable society. My mission has not changed. We’re going to build a safe, affordable city by making investments in people.”
Chicago Public Schools needs a record $379 million tax-increment financing surplus just to keep cuts out of the classroom — even without making the pension payment. That’s $79 million more than last year’s record amount.
But CPS is not going to get it.
Although the precise number will not be known until the city’s capital plan is finalized, Budget Director Annette Guzman said the 2026 TIF surplus is “anticipated to go down” to reduce city borrowing costs for infrastructure projects.
Ald. Jason Ervin (28th), chair of the City Council’s Budget Committee, also advised CPS not to hold its breath for a record windfall from City Hall.
“If the surplus doesn’t reach that $700 some-odd million level to support $379 million going to CPS, then CPS may have to make some difficult decisions,” Ervin said. “When you surplus TIF dollars, you are essentially delaying or not doing things that you said you were going to do” in “areas that have economic needs.”
The budget the school board passed does commit CPS to making the pension payment, provided it receives additional funding from the city or state. Still, the board’s 12-to-8 vote embarrassed Johnson — and it increased his 2026 budget hole to $1.2 billion.
That includes $200 million for four years’ worth of retroactive pay for 4,800 firefighters and paramedics now poised to ratify a new six-year contract that included no major union concessions.
The city’s shortfall could have been worse, if not for higher-than-expected city revenues and mid-year budget cuts, including not filling hundreds of vacant city jobs. Johnson made no attempt to sugarcoat the “hard truths” and tough choices ahead.
Reiterating his oft-repeated call for “progressive revenue,” Johnson said the “ultra-rich and our large corporations have to do more.”
If the Illinois General Assembly refuses to support progressive revenue sources to help Chicago dig out of its massive budget hole, Johnson confirmed what senior mayoral adviser Jason Lee told the Sun-Times nearly a month ago — the mayor will seek a dramatic expansion of the city’s home-rule authority to allow the city to help itself.
That might allow Chicago to tax professional services, high-end property transactions or impose a corporate income tax.
“There are progressive means in which we can generate revenue that we don’t have the ability to do because of the way the law is structured,” Johnson said. “If the state of Illinois is not necessarily interested in some of those ideas at the state level, we’re certainly ready and prepared to explore them at the city level.”
Two of the most likely possibilities currently within the city’s control are an increase in the $9.50-a-month garbage collection fee that has been frozen since its 2015 inception, and restoring the automatic escalator imposed by former Mayor Lori Lightfoot that would lock in annual property tax increases at the rate of inflation.
The City Council is also facing an Oct. 1 deadline to reinstate the 1% grocery tax eliminated by the state or risk taking an $80 million hit.
“We may be painting ourselves back into the same corner that happened in the ’90s and the early 2000s under the Daley administration by forgoing revenue that’s necessary to make government operate,” said Ervin, who favors the automatic escalator. “There definitely need to be some efficiencies. … But I do not believe we can cut our way to $1 billion in cuts without seeing significant impacts on services.”
A working group co-chaired by veteran businessman Jim Reynolds and Chicago Urban League President Karen Freeman-Wilson is expected to deliver its preliminary cost-cutting and revenue-raising ideas to the mayor in mid-September.
The three-year financial forecast, which serves as the city’s preliminary budget, also paints a bleak picture for future years.
The “base outlook” projects a shortfall of $1.225 billion in 2028. The “negative outlook” includes a $2.031 billion deficit.
Even the rosiest outlook forecasts a $716.4 million shortfall in three years.
All three scenarios count on the city continuing to make an advance pension payment over and above the state mandated contribution of $2.8 billion in 2026. The city anticipates making a $260 million advance pension payment next year.
After keeping his campaign promise to hold the line on property taxes in his first budget, precariously balanced with one-time revenues, Johnson proposed a $300 million property tax increase for 2025.
Many Chicago homeowners felt betrayed. Their City Council representatives responded by unanimously rejecting the mayor’s proposal and refusing to approve a politically unpopular property tax increase of any size. That forced Johnson to cobble together a package of $165.5 million in other fines and fees.
In the debate that preceded the 27 to 23 vote, allies and critics alike admonished Johnson for a series of budget missteps that created a deep distrust between the mayor and a Council determined to flex its muscle.