Chicago nixes property-tax hike as Olympic loan payment extended

Chicago Mayor Brandon Johnson is reversing his plan to raise property taxes by offering to use some bond refinancing savings and defer a loan repayment to close the budget deficit.

After delaying Friday’s vote on his 2025 spending plan, Johnson is trying to garner enough support to pass a budget by the Dec. 31 deadline. He had struggled for weeks to convince a simple majority of aldermen in the 50-person city council to support his proposed property-tax hike to close the deficit. Aldermen were told on Sunday about the city’s plan and the city council is set to vote on the revised budget Monday afternoon.

“Based on conversations with aldermen the decision was made to remove the property-tax” increase, Chief Financial Officer Jill Jaworski said in a telephone interview on Monday.

Earlier this month, the city refinanced municipal bonds that generated about $146 million in savings, and officials now see about $54 million in lower debt service costs to help plug the $1 billion budget shortfall, Jaworski said. The city had considered using those funds to repay debt related to a loan under Mayor Richard M. Daley for the 2009 purchase of the former Michael Reese Hospital campus. That site was intended to be a part of the Olympic campus but Chicago lost the bid for the 2016 Olympic games to Rio de Janeiro. 

The mayor’s proposal in October didn’t include repayment of the final loan portion of the more than $90 million the city had paid for the Michael Reese site, Jaworski said. The loan, a general obligation of the city not supported by the property-tax levy, had a fixed interest rate of 3.55% following a 2017 refinancing and an outstanding balance of about $40 million that was set to mature June 30, 2024, according to a bond filing in 2022. The loan has lingered for years on the city’s balance sheet even after Chicago agreed in 2021 to sell the site to a developer in phases through 2035.  

The city paid that $40 million from a separate line of credit this year and is proposing to amortize the debt in 2026, Jaworski said. She added that at the high-end, deferring paying off the debt entirely may cost the city $2 million a year.

Alderman Daniel La Spata said the proposal appears to be “kicking the can down the road.”

Jaworski disagreed, adding that the city is looking at different ways to repay the loan over time given the site has not been developed yet. 

The city council is expected to approve the latest version of Johnson’s spending plan Monday now that the property-tax hike has been removed. He had originally pitched a $300 million property-tax hike that aldermen unanimously rejected, and then lowered it to $68.5 million before nixing it.

Johnson and his team have negotiated items piecemeal and proposed raising other taxes, fines and fees to fill the nearly $1 billion deficit in the city’s $5.6 billion operating fund, known as the corporate fund. That fund pays for public safety, streets and sanitation among other services.

Rating firms are watching how the budget process unfolds. Last month, S&P Global Ratings put the city on a negative credit watch with at least a one-in-two chance of a downgrade in the next 90 days amid the struggle to pass a budget.

The rating firms have expressed concerns that include the city making its statutorily mandated pension payments as well as the supplemental amounts that have been added in recent years, Jaworski said. They have also stressed that the city focus on budgets that are primarily structurally balanced.

“We are hopeful that the rating agencies will be comfortable with this budget and with all the revenues and cuts,” she said. “But we recognize they are looking at it carefully and there always is some risk that we could get downgraded.”