October 27, 2026
By Daniel Vesecky
At the beginning of October 2026, the Civic Federation released a piece discussing the five things that we hoped to see prioritized in Chicago’s FY2027 budget. With the Mayor’s budget proposal formally released on October 21, kicking off the 2027 budget cycle, it’s time to see how that proposal measures up. The short answer? Not well.
1. Avoiding Short-Term Budget Fixes
The Mayor’s budget proposal makes use of several one-time sources to close the $882.4 million projected budget deficit, digging the City even deeper into the financial hole it is already in. The methods used to close the City’s budget gap in this proposal are far from structural or sustainable. The first of these one-time fixes is using $37.7 million from the Chicago community catalyst fund for operating costs. The Catalyst fund is a pool of money intended to increase access to capital in underinvested areas of the City. It has sat unused since 2020, and the City’s Inspector General recently recommended closing it. However, the Mayor’s decision to repurpose more than half of the $57 million sitting in the fund to pay down immediate operating costs amounts to a one-time fix. It would be far wiser to invest this small windfall in paying down Chicago’s existing debt and pension liabilities, or to at least spread its usage out across multiple budget seasons.
More egregiously, this budget also uses every cent that the City Council extracted from Stonepeak Partners as a part of the resale agreement around Chicago’s parking meters. In addition to making the long-term aspects of the asset lease mildly less painful for the City, this deal required Stonepeak to pay a $75 million one-time fee to the City as a part of the acquisition process. That money was intended to go towards the City’s pension obligations. Instead, it will be used to fill this year’s budget gap. This would repeat the same mistake the City made when the meters were first leased in 2008. The $1.15 billion the City received from that original deal was used entirely to fill budget gaps within two years.
But far worse than either of these (comparatively) small one-time fixes, the City aims to issue $480 million in debt to pay for the costs of legal settlements in police misconduct cases. Issuing long-term debt to cover operating costs violates municipal finance best practices. Not only does this measure avoid using structural revenue sources to close the budget gap, it also passes today’s costs on to tomorrow’s taxpayers.
Proponents of the Mayor’s budget may argue that this year’s large bill for legal settlements and judgements is a unique one-time cost that deserves to be amortized out over time rather than paid down all at once. But the fact of the matter is that Chicago spends large amounts of money on judgements and settlements every year. In fact, in the 2026 budget, the City took out $512 million in new debt, over half of which was used to cover the cost of settlements. Since the City has to pay for settlements every year, these expenses should not be thought of as unique costs that justify borrowing. Settlements are effectively operational costs—part of the City’s annual expenses, just like salaries or pensions. Borrowing to pay for settlements is the government equivalent of taking out a loan to buy groceries. This move would be fiscally irresponsible, with the added principal and interest costs only making it harder to close next year’s budget gap.
2. Continuation of the Supplemental Pension Payment
On the issue of pensions, the budget proposal notches its only passing grade. This budget includes the City’s full $363 million advance pension payment, which is a supplemental amount beyond the statutorily required payments to four City of Chicago pension funds. These additional contributions are intended to curb growth in pension liabilities and reduce future pension costs. Every dollar the City contributes to its underfunded pensions now saves us money in the future and provides more time for contributions to earn investment returns and improve the pension funds’ long-term financial condition.
Since the City started making these supplemental contributions in 2023, they have become an essential part of the budget, central to the City’s strategy to pay down its massive legacy liabilities. The payment also serves as a powerful signal to investors and creditors that the City is serious about confronting its financial troubles. Credit rating agencies view this contribution as a requirement to keeping the City’s rating stable, and an abandonment of the advance pension payment would almost certainly lead to a downgrade for Chicago.
That said, the benefits of making this supplemental pension contribution are overshadowed by the City’s proposal to issue $480 million in debt to pay for police settlements. Paying down one type of legacy obligation only to increase another one negates any meaningful improvement in the City’s long-term fiscal stability. The Mayor’s budget may technically achieve the goal set out here, but trading pension liability for debt liability is hardly a victory for Chicago’s fiscal stability.
3. Making Meaningful Progress on Cost-Cutting Efficiencies
The Mayor’s budget proposal claims to achieve $119.8 million in savings and efficiencies. However, this number is extremely deceptive. Over half of these savings—$68.4 million—are a simple reallocation of some expenses from the City’s corporate fund to other funds within the budget. Of the remaining $51.4 million, $20.6 comes from a hiring freeze at the Chicago Police Department (CPD). While hiring freezes save the City money in the short-term, in the long-term they build up the number of personnel vacancies within City government and can lead to lower quality services. Within emergency response departments such as CPD, reductions in hiring also risk diluting the savings they generate by increasing the amount of overtime paid to existing officers. Thus, although this freeze constitutes a one-time saving, it is not a structural efficiency. All told, only $30.8 million of the budget’s claimed savings are actually structural efficiencies.
In 2025, the Mayor’s Office commissioned the consulting group EY to compile a report on possible avenues for cost cutting and efficiency. EY produced a comprehensive report that found possible savings across many areas of City government including the City’s vehicle fleet, real estate footprint, public safety service design, and organizational structure. Almost none of those efficiencies were present in the FY2026 budget. In the year since, the City has since retained EY—at a cost of $7 million—to help with the implementation of these recommendations. According to a Budget Committee hearing on October 23, EY is focusing its implementation on special events cost recovery, fleet and facilities management, and organizational analysis. Unfortunately, these were many of the smallest areas of potential savings in the EY report. Areas of reform that could generate larger savings for the City included procurement reform, service optimization, and employee benefits. Puzzlingly, the City has decided to take on implementation of these recommendations without EY’s assistance and has not publicly provided any insight on their progress.
Despite investing millions of dollars in a thoughtful roadmap of efficiency options from EY, the administration has refused to act on EY’s largest recommendations and has retained them to focus on implementation of only the smallest areas of potential savings. In addition, this budget recommends over $130 million in new spending in areas such as homelessness services and tree trimming. While these are laudable priorities, the City would be wise to focus its spending on essential services rather than broadening the scope of its work at a time when expenditures are rapidly outpacing revenues and the budget runs a large structural deficit.
4. Commonsense Revenue Increases
The Mayor’s budget proposal relies heavily on several new taxes and tax increases to close the budget gap. In total, these revenue enhancements comprise $447.2 million of the overall $882.4 million gap. Two major revenue proposals stand out: 1) The budget proposes raising the City’s Personal Property Lease Tax (PPLT) from 15% to 20%, which would generate an additional $235 million in FY2027. 2) The budget proposes raising $113.8 million through the creation of an Equitable Employer Tax (also known as a ‘head tax’) that would charge employers with 125 or more full-time employees $25 per employee per month, with exemptions for businesses located in economically disadvantaged areas.
There are reasons to be concerned about both of these taxes. Both taxes take direct aim at Chicago’s business community, and tax business dealings in ways that might produce negative externalities. A head tax creates a direct incentive for companies to limit hiring, relocate outside of Chicago or expand elsewhere. By effectively taxing jobs, the head tax threatens to reduce job growth in Chicago at a time when the City needs to attract investment, retain employers, and expand its tax base.
The proposed increase to the PPLT would make Chicago’s rate an extreme outlier compared to other major cities, with no public analysis about who ultimately bears the burden of the tax or of its broader economic consequences. While the administration characterizes the PPLT as a tax on large corporations, the fact of the matter is its impact on consumers and businesses is still unclear. This would be the third time the City raised the PPLT in three years after last year promising not to increase the rate again before 2028. The Mayor’s proposal https://chicago.councilmatic.org/legislation/o2026-0029643/strikes that promise from last year’s budget ordinance, effectively going back on the City’s commitment to businesses and taxpayers to keep this rate stable for two years. Repeatedly raising an already high tax without evaluating its impacts, while disregarding a commitment to rate stability, is not a sound approach to tax policy.
In addition to proposing two bad ideas, the FY2027 budget fails to engage with revenue-generating ideas that could have far less harmful ripple effects. As discussed in our last piece on the City budget, Chicago should move towards indexing many of its fines and fees to inflation and should even consider doing the same for property taxes. The City should also raise the garbage fee to be commensurate with the cost of garbage collection. These moves would be in line with best practices in municipal budgeting and could raise hundreds of millions of dollars in revenue for the City. Before proposing new taxes that could potential harm Chicago’s economy, the City should begin with well-documented and commonsense revenue sources.
5. Stronger City Council Oversight over the Budget
Last year's contentious budget cycle exposed fundamental weaknesses in Chicago's budget process and underscored the urgent need to strengthen City Council oversight and rebalance power between the legislative and executive branches. Despite the Civic Federation's recommendations for reforms, including increased funding for the Council Office of Financial Analysis and stronger professional staffing for Council committees, the Mayor's proposed FY2027 budget makes no meaningful progress toward addressing these deficiencies.
But even apart from these failures, this budget process is already not conducive to Council oversight. By waiting until October 21st to release his budget proposal, the Mayor gives the City Council only ten weeks (two of which contain major holidays) to evaluate and approve the budget before the end of the calendar year. This will force the Council to scramble to form a consensus on which parts of the budget it opposes. Without adequate resources, alders will struggle to propose their own alternatives and will experience pressure to fall in line with the Mayor rather than create conflict in an election year. Starting the process so late in the year limits the Council’s capacity to provide budget oversight and is likely to lead to yet another messy budget cycle on an unnecessarily compressed timeline.
Long-Term Goal: Achieving Financial Stability
This budget does little to move Chicago towards a place of financial stability. In fact, it moves the City further away from it. As revenue growth continues to be outpaced by runaway growth in expenses, as well as the City’s alarmingly high legacy costs, this budget proposal squanders yet another opportunity to start the work of digging Chicago out of its fiscal hole. By refusing to engage seriously with savings and efficiencies, failing to consider commonsense revenue options in favor of polarizing taxes, leaning on short-term budget fixes and continuing to attempt to sideline the City’s legislative branch of government, this budget proposal comprehensively fails to meet the challenges of this moment.
The Mayor’s budget proposal is an abdication of fiscal responsibility. With the proposal released, the baton now passes to the City Council. Two months may not be a very long time, but it is enough time for the Council to come together around an alternative budget that closes Chicago’s deficit by embracing structural, sustainable revenue increases and spending decreases and starts the work of leading the City into a place of stability. We urge it to do so.