Chicago will have to gather $1.3 billion in new revenue and spending reductions by 2023 to meet scheduled contributions to four pension funds and make rising debt payments, according to a report published TK from Kroll Bond Rating Agency (KBRA).
The bond rating agency reported that, in addition to the $1.3 billion, Chicago Public Schools (CPS) and other local taxing bodies may need an additional $339 million to meet those costs.
KBRA also reported that new taxes and spending reductions for the city, CPS, Cook County, and additional governments could end up becoming $1.66 billion by the same year —a move that the KBRA feels “will be politically painful, but affordable.”
Depending on the economy and if CPS receives the extra money it needs from state government and the city’s overall finances, this outcome could change for the better.
According to the Chicago Tribune, the city has already approved $1.4 billion in new annual revenue since Mayor Rahm Emanuel took office in 2011. The $823 million bulk of this revenue is from higher property taxes, a new water service tax, and an increased 911 fee—all of which are being used to increase pension contributions. A majority of the rest of the money is from increased water service fees dedicated to upgrading the city’s water system. In order to cover education costs, construction, and pension contributions, CPS has increased property taxes by more than $477 million since 2011.
Despite the gloomy outlook, KBRA is optimistic, giving Chicago a higher bond rating than other agencies—such as Moody’s, which warned of another debt downgrade earlier this month. The agency also feels that the state will eventually recover, although it will continue to be a bumpy ride.
“While tax burdens on households and businesses in Chicago may grow, actual property tax rate increases will likely be much less than many analysts project and, in KBRA’s opinion, will not result in total tax burdens that are so high as to impact the city’s position as the Midwest regional capital of commerce, culture, business, and education,” the KRBA said in a statement. “The challenges and risks related to the city’s severely underfunded pension plans are reasons KBRA rates Chicago BBB+ instead of a higher rating commensurate with the depth and diversity of its underlying economic base, effective management, improved financial controls, and ample reserves—conditions not present in situations like Detroit, Puerto Rico, and Stockton.”