Dive Brief:
- The city of Chicago is facing a government shutdown in the new year if the city council and Mayor Brandon Johnson can’t agree by Dec. 31 how to fund the 2026 budget.
- In an unprecedented move, the City Council voted 30-18 during a Dec. 20 meeting to pass its own budget package without the support of the mayor. As of Dec. 22, Johnson hadn’t announced whether he would sign or veto that budget.
- “City shutdowns have not occurred in recent decades and are uncommon within our political system,” said William Hatcher, professor of public administration and chair of the social sciences department at Augusta University.
Dive Insight:
Chicago is required to pass a balanced city budget every year, but the mayor’s proposed $16.6 billion 2026 budget faces a $169.3 million revenue shortfall.
During a Dec. 19 news conference, the mayor said his proposed budget and the council’s budget are “98.4% similar.” The main sticking point is whether the city raises money through a head tax on large corporations — which the mayor proposed and the council opposes — or through the sale of unpaid city fines and fees to debt collectors, which the council approved in its budget but the mayor opposes.
Johnson called the City Council’s budget proposal to raise $89.6 million of that shortfall by selling city debt to private collection firms “morally bankrupt” and described it as “aggressively going after those with the least ability to pay.” His aides also questioned whether it’s even possible to sell city debt.
Johnson’s budget addresses the revenue shortfall through a corporate head tax: He proposes charging companies with more than 500 employees $33 per worker per month, which he estimates would generate $82 million for the city in 2026.
The Chicagoland Chamber of Commerce opposes the head tax while the Chicago Teachers Union supports it. According to a poll the union released in November, about 90% of Chicago’s Black and Latino registered voters favor increasing taxes on large corporations rather than raising property taxes or cutting funding for education or city services to close the funding gap.
A corporate head tax is an unusual city budget approach, Hatcher said. “Few localities and no states have implemented the type of corporate head tax currently under discussion in Chicago. Seattle adopted a similar tax a few years ago but quickly repealed it,” he said.
Research on the pros and cons of using corporate head taxes to boost city revenues is limited, he said.
“Theoretically, however, such a tax may result in more costs than benefits,” he said. “This particular tax might incentivize companies to relocate to avoid it, especially larger companies.”
But on the positive side, Hatcher said, “the simplicity and clarity of a corporate head tax could facilitate government collection. The ease of administration and low cost associated with this type of tax are significant factors in its favor as a revenue-raising mechanism.”
Hatcher expects the council and mayor to come to a consensus on approving a budget before the Dec. 31 government shutdown deadline.
If a shutdown does occur, he said one option might be for the state to step in to keep operations running.
“In certain states, such as Michigan, the state government can appoint a financial manager to ensure that essential municipal services are provided,” he said.
