Top mayoral aides on Monday began their defense of Mayor Brandon Johnson’s tax-heavy $17.6 billion budget and acknowledged that they have no Plan B if, as expected, the failed corporate head tax is shot down again.
One year after a 31-member coalition of conservative and moderate alderpersons rejected the mayor’s corporate head tax, 29 alderpersons have vowed to do the same with Johnson’s newest attempt.
They will be joined by business leaders, who are also determined to block the third and biggest increase yet involving a Chicago tax on equipment rentals and cloud computing. The current tax is already the highest in the nation.
Against that backdrop, Johnson’s finance team began the task of trying to sell a tax-the-rich budget that includes $664.2 million in new and increased taxes and just $119.8 million in spending cuts. The trimming is even less, given the fact that up to $68 million of that spending is being shifted from the city’s corporate fund to enterprise funds.
“This budget is quote, unquote `balanced’ with more than five dollars in new revenue for every one dollar saved,” said downtown Ald. Brendan Reilly (42nd). “Why is the administration choosing taxing over managing its expenses?”
Acting Budget Director Jonathan Ernst said cost-cutting in Johnson’s first three budgets produced “nearly three-quarters of a billion dollars” in savings. “Those reductions continue this year. We’re adding another $120 million,” Ernst said.
Reilly was not appeased and lashed out at newly appointed Chief Financial Officer Ashlee Gabrysch, a former senior director and mid-central regional manager at Fitch, the Wall Street rating agency that dropped Chicago’s bond rating in February to three notches above junk.
“This budget repeats every one of those problems listed by Fitch ratings where you once worked,” Reilly said. “We have at least $155.6 million in one-time money, $480 million in new borrowing for settlements, (a) $882 million structural gap and a jobs tax that a majority of this City Council rejected once already.”
Ald. Anthony Beale (9th) demanded to know why the head tax was even presented to the City Council “knowing you had 29 aldermen who wouldn’t support it.”
“What’s Plan B if the head tax doesn’t pass?” Beale asked Ernst.
Ernst said, “Work with the City Council. We presented you with our plan.”
Ald. Nicole Lee (11th), who helped lead last year’s unprecedented budget rebellion, homed in on Johnson’s proposal to raise by 33% the tax on equipment rentals, software and cloud computing.
“This is just an insane amount to increase the PPLT,” Lee said of the personal property lease transaction tax.
Lee said a promise was built into the management ordinance tied to the city’s 2026 budget that promised not to raise the so-called “cloud tax” for two years.
“What happened to the freeze, guys?” she said.
Ernst said the two-year freeze was stricken from the management ordinance because the cloud tax has over-performed, and the city could not resist the temptation to take even greater advantage of what has become a cash cow.
“This is where the economy is moving towards, away from areas that we typically tax," Ernst said. "We need to evolve with that or else we don’t end up getting the structural fixes that we need.”
Johnson's decision to freeze hundreds of police vacancies and civilianize more than 130 more police jobs was another flash point on the first day of budget hearings. So was the mayor's plan to borrow $480 million over what Gabrysch described as five to seven years to cover settlements tied to allegations of police abuse.
The mayor recently used his fourth veto to block an ordinance that would have required a three-fifths vote for future borrowing. City Comptroller Michael Belsky denied that continued borrowing to cover operating costs would trigger another drop in the city's bond rating.
"These are things that happened years ago, that are now coming home to roost," Belsky said.
"We don't want this liability. Nobody does. But the best way to deal with it without crowding out a lot of services at that larger number and affecting the quality of life in Chicago — the only option you have is to finance... as short as possible and you hope that, going into the future, these things dissipate so you don't have to face that floating liability every year."
Finance Chair Pat Dowell (3rd) also made it clear that she and her colleagues would not allow Johnson to use the $75 million up-front payment they negotiated with Stonepeak Partners to be used toward the advanced pension payment. They want the $75 million to be an extra payment to chip away at the city's $36 billion pension crisis. That negotiation paved the way for Stonepeak’s acquisition of the city's parking meters.
