Chicago budget deficit projection balloons to $1.15 billion for 2026
Chicago's projected budget deficit in 2026 is even higher than previously predicted, Mayor Brandon Johnson and city officials warned Friday.
The city is facing major revenue shortages next year and a massive Chicago Public Schools Municipal Employees' Annuity and Benefit Fund pension payment that could throw finances into disarray.
This time last year, the city had projected a budget deficit of $1.12 billion for 2025, but is anticipating ending this year just $146 million short. But Friday, the city projected the 2026 deficit to start out even higher at $1.15 billion.
Officials presented three possible forecasts for city finances through 2028 reflecting three possible economic futures. Their baseline forecast projects modest growth with persistent inflation with tax cuts and deregulation to offset price increases from tariffs and federal spending cuts. A negative forecast predicts a recession at the end of 2025 through the early part of 2026, which would limit consumer spending and widen the budget shortfall to over $2 billion by 2028. A positive forecast in which the city experiences stronger growth and policy uncertainty is mitigated would narrow the budget gap to $716.4 million by 2028, officials said.
The city said its Corporate Fund revenues are projected to drop over 9% and lose $424.6 million in 2026, which officials said reflects the loss of one-time resources and uncertainty around CPS pension reimbursements.
Meanwhile, spending from the Corporate Fund is expected to increase nearly 11% to $6.41 billion in 2026. That increase includes $907.8 million in pension payments, $4.16 billion in personnel costs and $617.6 million in contractual services.
Officials said the city has tried to slow the growth of unfunded pension liabilities by making more than $820 million in supplemental contributions since 2023, and the 2026 projection includes $219.4 million in supplemental payments from the Corporate Fund.
The city said revenue is down because there was no property tax increase, and they have not been reimbursed by CPS for the MEABF required annual pension payment of $175 million. The city said that it's portion of the MEABF payment is over $400 million just for CPS non-teacher employees. Additionally, increased labor costs, overtime and legacy costs and a healthcare cost increase double what is typical annually all contribute to the projected deficit.
The city is also bracing for reduced funding from the federal government in public safety, housing and social services and public health because of President Trump's "Big Beautiful Bill" budget that was passed earlier this year.
Despite the massive budget deficit, the mayor is not planning to seek a property tax increase for 2026, other than the natural growth in property tax revenue due to new properties, after his push for a $300 million property tax hike last year to help close a $982 million gap was met with unanimous opposition from the City Council.
Johnson reiterated his desire for new "progressive revenue" to help the plug the city's budget gap, citing concern that "budgets have been historically balanced off the backs of working people."
"Just know that I've said from the very beginning that the ultra-rich in our large corporations have to do more," Johnson said.
Civic Federation President Joe Ferguson said the city needs to trim as much fat as possible before asking taxpayers for more money.
"Have we eaten our vegetables before we're asking for the taxpayers at all levels and other units of government to give us dessert?" he said.
While the numbers are daunting, Ferguson said a balanced budget is not a lost cause.
"How do you eat an elephant? The answer is always one bite at a time," he said. "Let's not get ahead of ourselves. Let's deal with what's immediately in front of us. That's a real number, $1 billion to $1.4 billion, and there's work to be done, and there's good budgeting principles by which you can go about it."
The Chicago Board of Education passed a budget for CPS Thursday night as the district faces a $734 million shortfall of its own. It did not include a controversial $200 million high-interest short-term loan sought by Mayor Johnson, nor does it guarantee that the district will reimburse City Hall $175 million for the MEABF pension payment covering non-teacher employees unless CPS gets more money from the state. Gov. Pritzker has indicated he does not intend to increase funding to CPS from state coffers.
At the beginning of August, Johnson warned that the city had reached the "point of no return" regarding its finances.
"The systems that people rely upon — education, health care, housing, our transportation — they are woefully underfunded, and everyone knows that. Everyone knows what, you know, my commitment is to progressive revenue. I can't do this by myself," Johnson said at the time.
Johnson reiterated Friday that he will be looking for ways to bring in more tax revenue from the 127,000 millionaires who now call Chicago home, as well as the 25 billionaires that live within city limits.
"Just know that I've said from the very beginning that the ultra-rich and our large corporations have to do more," Johnson said.