Chicago is staring down an $882.4 million budget deficit for fiscal 2027, marking the 27th consecutive year the city will face a shortfall, according to a report published by the Illinois Policy Institute. In advance of budget negotiations, 29 aldermen have written to Mayor Brandon Johnson demanding structural reforms rather than relying on temporary fixes to cover what they call a "permanent problem." The aldermen have ruled out supporting a corporate head tax, property tax hikes, or revenue from Springfield that hasn't been approved yet, pushing instead for cuts to wasteful spending and improved efficiency.
The deficit is driven primarily by a projected $554 million surge in spending, an 8.9% jump that would push corporate fund expenditures to a record $6.76 billion. Financial costs, including bond payments, are expected to skyrocket by 86%, adding $282.1 million to the budget. Pension expenses are slated to climb by $90.5 million, while personnel costs will increase by $52.7 million from 2026. Making the shortfall worse, corporate fund revenue is projected to drop by $244 million, though this decline stems from the elimination of one-time tax revenues used to patch previous deficits rather than a shrinking tax base. Local tax revenues are actually expected to rise by $72 million, mainly from transaction-related levies like the real estate transfer tax, but overall revenues will still fall because the city won't have access to $166 million in one-time borrowing and $156.7 million from TIF surplus that it relied on last year. The city also faces an $85.1 million gap for the remainder of 2026, which the mayor plans to close through bond refinancing.
The report points to a troubling trend: since 2019, corporate fund spending has ballooned by nearly $3 billion, or 74%, driven mainly by growth in personnel-related costs such as salaries, benefits, pensions, and overtime. Despite substantial revenue growth over that period, the unsustainable pace of spending increases has created recurring budget shortfalls. The Illinois Policy Institute notes that Chicago has historically relied on one-time revenues and budget gimmicks to close gaps, such as declaring TIF surpluses and banking on improved revenue projections, rather than pursuing structural reforms.
This repeating imbalance has damaged Chicago's credit rating, which drives up borrowing costs for taxpayers. In February, both Fitch Ratings and KBRA downgraded the city's rating from A- to BBB+, leaving it just three notches above junk status. Fitch specifically cited "consecutive operating deficits since 2023" and the city's continued dependence on non-structural solutions as primary factors in the downgrade. The report warns that Chicago must solve this chronic issue rather than continuing to shift the burden to the next budget cycle, a pattern that ultimately harms taxpayers who foot the bill. With aldermen drawing a line against new taxes and temporary fixes, the city faces a critical choice: reform the way it spends, or watch its fiscal credibility erode further.