DETAILS MATTER by Bob Ginsburg November 5, 2021
The Federally under-written FY2022 Budgets did a lot of good things. Now is the time to start FY2023 to insure those “good things” will last for a decade
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The Federally under-written FY2022 Budgets will do a lot of good things. Now is the time to start FY2023 to insure those “good things” will last for a decade.
‘The devil is in the details’
I have recently been told that I am a “Nattering Nabob of Negativism” (i.e. too critical) regarding the budgets; that I ignore “political realities”; and I am never satisfied. (For those that do not recognize the alliterative phrase look up Spiro Agnew.) It is true I want to see more long-term changes and improvements in how we govern. I think we need to make structural changes to insure we can deliver needed changes more quickly and regularly. I do recognize that achieving such changes generally does go against the grain of political reality in a world with a pandemic and most political rhetoric still reflecting Ronald Reagan’s framework and not Joe Biden’s.
Convincing people that government can improve their lives (contrary to the Ronald Regan dictum from 40 years ago that “government is the problem”) requires delivering results. Announcing programs is not enough. One year does not make a narrative. Talking about how people’s lives have gotten better (as with coverage for pre-existing health conditions) is different than arguing simply for big government. (BTW polling and surveys clearly show that at this point people reject arguments for more government programs but react positively to the programs that have resulted in better opportunities and benefits in their lives.) That can be spun into a clear narrative. It is true that these better life opportunities come from government efforts (e.g. Medicare) but at this time people do not make that connection.
My arguments and suggestions go through the lens that government is underfunded and unreliably funded which makes programs inconsistent and thus feeds people’s mistrust of government. The recent coronavirus relief programs and hopefully upcoming Infrastructure Bills provided substantial resources to reverse that underfunding. They show what nearly adequate funding would allow us to do. The City, County and State budgets all have started a range of programs to better support working people, underinvested and underserved communities and local businesses. This includes significant expansion of funding for affordable housing and rental support, income support programs, mental health programs, etc. The question will come up quickly next year as to how long these programs will last. Too often programs start off grandly and quickly taper off. It is easier to announce trophy projects (like many of the Invest South/West projects) and not make any promises or statements about complementary improvements (transportation, schools, healthcare, and food deserts).
The good things in the recently adopted City budget included:
· $25 million in new funding for housing, legal, and income support for survivors of gender-based violence, including domestic violence. This is over three times the amount provided in previous budgets;
· $274 million for affordable housing and homelessness supports, including rapid rehousing for people at risk of becoming homeless, Single Room Occupancy building preservation (SROs), and expanded homeownership;
· $51 million for mental health supports, including an expansion of community-based mental health services and extended hours and adolescent support services at five public mental health clinics;
· $100 million for violence prevention and 911 alternative responses; and
· $188 million for environmental protection and sustainability, including regional composting sites, electric vehicle charging technology, the removal of lead and other hazards in homes with young children, and the annual planting of an additional 15,000 trees.
We will see how effectively these programs are implemented, whether they make a difference in underinvested communities and how they will be institutionalized (e.g. continued beyond this year). The City Council did create a new subcommittee to oversee implementation. It all remains a work in progress.
The State budget included nearly $100 million for affordable housing, accelerated capital plan funding, and added funding to health care funding.
The County budget added significant funding to address domestic violence, violence prevention/criminal justice reform, suburban affordable housing, and staffing at the Hospital System.
They are not perfect but could (emphasize “could”) provide a blueprint of better, more effective government that delivers to all residents.
So Why Not Wallow in Progress?
Three reasons: Progress is not solutions. Rebuilding Underinvested Communities and Equal Opportunities will take years to show results. There is no guarantee all this progress can be funded beyond this year. The budgets are based on a federal windfall and bond revenues and thus are not stable, predictable funding. Let me point out three big question marks.
City Debt: The city lost $1.5 billion in revenues in 2020 and 2021 and managed to make it through the pandemic so far without major tax hikes, program cuts or layoffs. The city is using $1.17 billion of the total $1.9 billion in American Rescue Plan money to replace revenues lost during the current and 2022 fiscal year budgets, leaving a scant $152.4 million to address any gaps next at the end of 2022.
But the path ahead isn’t clear. The models that revenue forecasters have relied on may not work (or work as well) anymore, and the playbook needs a rewrite. In terms of revenue, this upcoming budget year is probably going to look more like the depths of the pandemic than 2018 or 2019. For a city like Chicago that depends on consumption taxes, they’ll have to hope for the best until the fog clears. All these fundamental questions are going to have to be revisited.”
The city’s CFO, in an op-ed in Crain’s and in a City Club speech, does acknowledge the increase in debt and suggested that the city plans on paying off nearly $1.2 billion in debt over the next five years. This could drop the debt service level to below 20% of local revenue (which is one of the key metrics used by rating agencies). However finding the extra $300 - $400 Million revenue each year to pay down that much debt depends on having as much new revenue in each of the next few years as there is this year. Any reduction in principal and interest payments was not included in the budget documents or hearings. These details matter. Reducing total debt and annual debt service are important goals.
The city is using some of that ARP money—plus a round of general obligation borrowing—for a series of new programs and expansions of existing ones focused on affordable housing, help for families and the homeless, and climate resilience. The city has repeatedly stressed that “these moneys are one time in nature,” which is why the programs are pilots or one-and-done recovery projects. The city is tracking outcomes—socially and financially—to figure out which ones might be a good long-term investment. Cutting those programs to fund extra payments on debt each year will have difficulty getting through the City Council in future years.
Even the Civic Federation is concerned about the city's high ratio of debt service to appropriations. Without revenue growth, the Civic Federation warned, the bill for pensions and debt service will crowd out other city services. It is banking on revenues from a new Chicago casino and a steadily rebounding sales and property taxes. Bids from five casino builders came in last week, but operators aren’t likely to open their doors for years and it is unclear when fees from casino operators will be received. Since the City is now on actuarial funding for its pensions, the city has increasingly relied on property taxes and a hodgepodge of other revenue sources to reach pension funding targets: As the rating agency Fitch pointed out in a recent outlook revision for the city, “the carrying costs for debt service, actuarially-required pension contributions and other post-employment benefit actual payments accounted for 46% of 2020 governmental fund spending.”
It does not provide confidence in the administration’s strategy when the CFO in both Crain’s and the Sun-Times misrepresents Chicago debt and debt service appropriations and then the Budget Office misrepresents the total number vacant positions in FY2022 in their response to Aldermanic questions during budget hearings. With the latter, the Alders were told that there were 1645 vacant but budgeted positions since January 2021 and they would be filled. Yet the City data portal last July showed nearly 3000 fewer actual employees than budgeted positions. The answer to alderman skipped over the budgeted positions existing prior to January 2021 that had not been filled since the previous year. Not filling positions is a way to slow down implementation of programs and increase available funding to protect against revenue shortfalls and unforeseen new projects.
The City debt payments area a critical budget and fiscal issue. They are listed in the FY2022 Budget Recommendation at 23% of total local fund net appropriations, or $2.4 billion out of expenditures of $10.6 billion. The City as part of the new budget included $660 million in new general obligation bonding to help fund the “Chicago Recovery Plan.” That new debt will pay for capital and other projects. The CFO said that the new borrowing will be balanced with “carrying the full freight of debt service” in this budget. (https://www.chicagobusiness.com/finance-banking/chicago-plans-borrow-44- billion) The City also stated that it intends to pay down $225 to $377 million of bonds (not debt service) each year (depending on total funding) totaling $1.8 billion in debt by the 2025 fiscal year.
Since FY2019, debt service appropriations have risen by 27% as shown below from the annual Budget recommendations.
(Principal & Interest-P&I- payments from Annual Budget Recommendation Documents . Specific P&I totals due to bond repayments will not be known till FY23.
County Health System funding. The County made a big deal of increasing hiring in the County health system and increasing funding in many areas. That funding (in the fine print) is based on the County Hospital system increasing patient revenue (mainly from Medicaid and County Care Medicaid HMO) by 1-2% each year which has been a goal (in one form or another) for the last 40 years. Getting more payments from County Care while expecting a nearly 20% decline in County Care enrollment is a big goal. No details were presented in the budget as to why this coming year will be different than any of the last 40 years. If unsuccessful, next years budget will be challenging.
CTA has not been brought into rebuilding communities. CTA dramatically announced “fare cuts” in their monthly passes and three-and seven-day passes. These address needs of downtown workers and tourists and not from lower wage workers who generally don’t purchase such passes. It appears to show that CTA and City Hall planning are not moving on from white collar/downtown commuters. They are still de-prioritizing essential workers, communities of color, etc who rarely can afford monthly passes, three-day and seven-day. The CTA and its separate and substantial federal bailout funding need to be brought into planning along with City and County funds. It is necessary to link programs that will improve schools, and address transit deserts and affordable housing. Better transit is essential to keep existing residents in their homes and support growth of local commercial centers like 26th Street in La Villita and 6-Corners.
Over time, convincing people that government can improve their lives requires delivering results.