Democratic Mayor Lori Lightfoot said during a news conference that the budget shortfall stems in part from the closing of restaurants, hotels and other service industries over the last two months, which she said has had a "devastating impact" on city coffers. The decline in revenue comes mostly from the city's amusement tax, hotel tax, parking tax and restaurant tax, she said.
Lightfoot said the city will reprioritize purchasing to close the gap, try to find savings within departments, slow down hiring and push back projects. But while emphasizing that a property tax increase is a last resort, Lightfoot said she wouldn't rule it out, along with layoffs.
"In this reality, the last thing that I want to do is raise our taxes," Lightfoot said. "I can't take that off the table, but it is truly the last thing that I want to do."
Lightfoot said that a hiring freeze and eliminating vacant positions until 2021 would have only a limited impact because the fiscal situation for next year also looks difficult. Not only have businesses closed, but workers have little or no income for themselves or to spend at businesses, she said.
"What we've seen is a complete change in consumer behavior as a result of COVID-19, stay-at-home orders and other things that have affected the way in which people are consuming goods and services," Lightfoot said. "People aren't driving, and they're just not consuming goods and services in the same way."
Lightfoot said that for March and April alone, the city lost $175 million in expected revenue, and the city expected a similar trajectory of loss in May. The months represent when people have been forced to mostly shelter in place to prevent the spread of COVID-19, the respiratory illness caused by the novel coronavirus.
Lightfoot said the $700 million figure represents the depth of the revenue loss during the shelter-in-place order and assumptions about the speed of the economic recovery through the end of the year.
Chicago is among many localities and states where tax revenue has plummeted because of measures to stop the spread of COVID-19.
New York City is facing a combined tax revenue shortfall of $7.4 billion from previous projections for the remainder of 2020 and fiscal year 2021 because of the pandemic, according to the city's comptroller.
New York state and New Jersey, both hit hard by the pandemic, are also facing billions of dollars in lost revenue and have turned to cutting and borrowing to try to close the gaps. Moody's Investors Service projected in April that states could lose up to $160 billion in tax revenue in 2020 and 2021 because of the pandemic, with recoveries dependent on state tax structures and the willingness to increase taxes.
Chicago's fiscal year ends on Dec. 31. Kristen Cabanban, a spokeswoman for Chicago's Office of Budget and Management, emphasized Lightfoot's point that raising property taxes is a last resort but insisted that the option must remain available. Cabanban declined to comment further, saying the mayor's remarks spoke for themselves.
City Council members didn't immediately respond to requests for comment Tuesday.
Ralph Martire, executive director of the Center for Tax and Budget Accountability, told Law360 on Tuesday that he thought Lightfoot was thoughtful in saying that a property tax increase was a possibility.
While Chicago has a diverse tax base, most revenue that feeds the city coffers is quite small and makes up less than 27% of total revenue, Martire said. While in most economic downturns that means the city wouldn't be hit as bad, the downturn created by COVID-19 is relatively distinctive in that it's affecting every revenue source that feeds the city, he said.
That means there's not any other major revenue source Chicago can go to for generating significant money, Martire said. Lightfoot, during the news conference, said the $700 million figure was conservative, and if there's another surge in COVID-19 cases, the shortfall could be ever greater.
"That's a sobering number," Lightfoot said. "And it presents a sobering challenge any way you look at it."
--Editing by Neil Cohen.
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