(Bloomberg) — The Chicago City Council on Wednesday approved a $16.7 billion budget for 2022 designed to help the city recover from losses incurred during the pandemic, through measures that include one of the nation’s largest guaranteed basic income programs.
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Mayor Lori Lightfoot’s plan relies on both federal assistance and higher property tax returns, among other sources of income. This revenue helps to cover the higher pension fund and labor costs. It closed a $733 million shortfall in the city’s $4.9 billion corporate fund, which pays for essential operations and services.
“I am very proud of this budget,” Lightfoot said in her speech after the spending plan was approved. “Really, the most progressive and forward-looking blunder in the history of our city.”
Chicago’s budget marks a shift from 2020, when the city was concerned about the impact of the pandemic on its credit rating. Now, it is embarking on a plan to sell up to $4.4 billion in debt in 2022, and credit ratings agency Fitch this week boosted the city’s outlook to stable from negative.
“Overall, the city budget is fairly strong and balanced, and the federal stimulus is a strong tailwind,” said Dennis Derby, portfolio manager at Wells Fargo Asset Management, which holds Chicago debt. “We’ll be interested in how the city is going to move forward with the budget as that revenue ebbs.”
Chicago’s structural financial problems are far from over, and Moody’s Investors Service classifies the city’s debt as junk. The city faces more than $31 billion in unfunded pension liabilities after years of insufficient contributions. It has endured about a decade of annual budget deficits but aims to achieve structural balance in 2023.
During the budget process, Jenny Huang Bennett, chief financial officer, said the city has focused on balancing financial needs, including pension payments, and those of the communities hardest hit by the pandemic and recession.
The plan boosts the city’s total retirement contributions for fiscal year 2022 to $2.3 billion across four funds, an increase of about $460 million from 2021. At the same time, the budget pushes the city’s Guaranteed Basic Income Plan forward and increases spending on housing, violence prevention, and mental health. Lightfoot stressed during her budget speech the need to raise all 77 neighborhoods in Chicago, many of which have faced decades of underinvestment in health care, housing and local economies.
The Guaranteed Basic Income Plan will provide 5,000 select families with a stipend of $500 per month for a year, thanks to funds provided under President Joe Biden’s US Bailout Act. Chicago joins other cities including Los Angeles in providing direct cash assistance to families in need.
Chicago is the latest American city to think about guaranteed income for the poor
The easing of the city’s financial pressure is obvious. Lightfoot last year faced “painful” choices to close record budget deficits caused by the Covid-19 virus and close businesses. Now it’s seeing tax revenue rise more than expected, the economy is recovering, albeit slowly, and $1.9 billion in US bailout money has come from the federal government over the years.
“We’re on the way to recovery,” Lightfoot said.
Chicago revenue in the first half of 2021 tops budget expectations by 6.5%
The 2022 budget includes approximately $76.5 million in CPI-related property tax revenue and new development, and $385 million in funding for the US bailout to replace revenue lost due to Covid-19.
(Updates with comment from the mayor begin in the third paragraph.)
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