Mayor-elect Lori Lightfoot could need to come up with more than $200 million beyond what Mayor Rahm Emanuel previously estimated in the 2020 city budget to cover higher pension payments and costs previously covered with expensive borrowing, Emanuel’s chief financial officer said Wednesday.
That would push the budget shortfall Lightfoot faces north of $700 million, higher-than-expected costs the incoming mayor didn’t know about until recently.
The city’s pension investments performed badly at the end of 2018 as the stock market took a dive, Chief Financial Officer Carole Brown said. That led to a negative rate of return that will force the Lightfoot administration to come up with perhaps an additional $100 million as the city shifts to actuarially based pension payments in 2020, Brown said.
In addition, the city’s move away from so-called “scoop-and-toss” borrowing — the practice of paying off old debt by creating new debt — under Emanuel has forced the outgoing administration to find new ways to pay down debt, Brown said. While last year the city’s sales tax revenue was higher than expected and covered those additional expenses, early estimates indicate there will be a need for around $130 million more to cover those bond payments in 2020, Brown said.
The city last year projected the day-to-day operating budget shortfall for 2020 would be just shy of $252 million. That figure did not include an anticipated spike of $276 million in contributions to the pension funds for police officers and firefighters.
So, it was expected that when Lightfoot took office and prepared her 2020 budget, she would have to come up with a combined $528 million in tax increases and budget cuts.
But the increase in pension contributions was an estimate, based partly on an expected return of 7 percent on current investments in the police and fire pension funds. As it turned out, those funds lost money in 2018, which in turn requires the city to increase its contributions.
Brown said it’s very early to be talking about the financial hole. “We would normally just be getting ready to close our books for the year,” she said. “But we have an incoming mayor and she’s quite fairly trying to get an understanding of the financial situation. So we are discussing it. But this is a very early estimate.”
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