Chicago is facing a financial reckoning of historic proportions. With a projected $1.1 billion shortfall in the city’s main operating fund for fiscal year 2026, officials are staring down the largest budget gap in the city’s history. The figure is not just an abstract number on paper. It represents a looming challenge that threatens to touch nearly every household and business in the city. Without significant changes, the shortfall could jeopardize everything from police and fire protection to street maintenance and public health programs. Recognizing the gravity of the crisis, city leaders turned to a new body of civic, business, and community leaders for solutions.
In August, Mayor Brandon Johnson convened the Chicago Financial Future Task Force (CFFTF), a group of 24 civic leaders drawn from business, labor, philanthropy, academia, and grassroots advocacy. The Task Force has already issued its first Interim Report, outlining nearly $2.1 billion in possible revenue and savings options. But behind the numbers are people — seasoned executives, union leaders, and community advocates who bring very different experiences and priorities to the table.
The Interim Report is the product of more than 20 meetings, public engagement sessions, and consultations with experts. It is meant to stabilize Chicago’s finances in the short term while buying time for a more comprehensive Final Report, due in May 2026, that will address deeper, long-term issues such as pension reform, costly legal settlements, and structural changes in how the city raises and spends money.
Chairman & CEO of Loop Capital, Jim Reynolds, is the Co-Chair of the Task Force. He brings a clear-eyed financial perspective. “Chicago didn’t develop a billion-dollar gap in a year, and we won’t erase it in a week, but we can change the trajectory now. After decades in finance, I know the cost of inaction is higher than the cost of action. Our interim report lays out 89 concrete levers: efficiencies first, with targeted, fair revenues, so the City can close the FY2026 gap responsibly, protect core services, and rebuild confidence for residents, workers, and employers, said Reynolds.”
Balancing that fiscal lens is Task Force Co-Chair Karen Freeman-Wilson. As President and CEO of the Chicago Urban League as well as a Harvard-trained lawyer, she has dedicated much of her career to public service. Wilson explains why a cross-section of independent minds was chosen.
“This group is independent by design: a broad civic coalition that doesn’t have to agree on everything to agree on progress. As a former mayor and community advocate, I care about results people can feel. We focused on clear, workable steps for FY2026 that keep neighborhood services front and center and explain the trade-offs in plain language, so residents see how choices affect daily life.”
Their perspectives underscore that solving the deficit requires not only financial rigor but also community trust — both of which are rooted in Chicago’s long fiscal history. Understanding how the city ended up in such dire financial straits requires looking back over several decades of fiscal decisions. The city’s Corporate Fund, which pays for the bulk of day-to-day services like police patrols, fire protection, garbage collection, and public health, has been structurally unbalanced for years. In layman’s terms, the city has been spending more than it brings in, even during strong economic years. Rather than fixing the imbalance, past leaders often relied on short-term fixes, such as borrowing money or using one-time revenues, to cover gaps.
After the Great Recession in 2008, revenues slowed while the costs of pensions, employee benefits, and debt obligations continued to climb. By 2011, state aid had stagnated, local taxes were lagging behind expenses, and pension funding requirements had soared. In 2015, the state introduced a tiered pension system that temporarily slowed the growth of obligations but did not eliminate the underlying problem.
The COVID-19 pandemic temporarily masked the crisis. Billions of dollars in federal relief from the CARES Act and the American Rescue Plan Act allowed Chicago to balance its books and maintain essential services at a time when the economy was stalled. But those federal dollars were temporary, and by 2025 most of them were exhausted. The fundamental imbalance returned, now worsened by the city’s need to make full pension contributions and pay down debt. Today, Chicago’s four pension systems collectively hold nearly $36 billion in unfunded liabilities. Pension expenses alone in 2025 accounted for nearly $1 billion of the Corporate Fund, and debt service obligations further squeezed the city’s flexibility.
This mounting imbalance did not go unnoticed by outside observers. In January 2025, S&P Global Ratings downgraded Chicago’s general obligation bonds to BBB with a stable outlook, just a few notches above junk status. That means investors see Chicago as a riskier borrower, forcing the city to pay higher interest rates on money it borrows. Over time, higher borrowing costs drain even more money from the budget, creating a vicious cycle.
In this context, the projected $1.1 billion deficit for 2026 is best understood not as an isolated spike, but as the inevitable result of compounding pressures. For residents, the practical implication is clear: without decisive action, the city may have no choice but to cut services, raise taxes, or both.
To address those pressures, the Task Force grouped its 89 recommendations into three broad categories. The first is operational efficiencies, aimed at saving money by improving how the city functions. These include proposals to freeze hiring for non-critical positions, extend the current reduction in overtime spending, streamline the city’s notoriously slow hiring process, and negotiate flexible furlough days with employees. Taken together, efficiency measures could save between $372 million and $455 million. Other examples include consolidating technology contracts, reforming workers’ compensation, and disposing of surplus vehicles more quickly to avoid maintenance costs.
Yet efficiencies alone cannot close the gap, which is why the Task Force also identified substantial revenue-generating options. Here, the Task Force identified 39 ideas projected to yield between $630 million and $1.65 billion. They range from modest fee increases to broader tax policy shifts. For example, the city could reinstate a “head tax” on large employers, a levy of $2 to $5 per worker, which was repealed in 2013 after business groups argued it discouraged job growth. Another proposal would require major nonprofit institutions like hospitals and universities to make voluntary payments in lieu of property taxes, a practice used in other cities. Smaller changes include raising fees for building permits, food and liquor licenses, and special events—some of which have not been adjusted for inflation in over two decades.
Other revenue options would more directly affect residents. The report suggests increasing the tax on bottled water and plastic checkout bags, maintaining the 1 percent grocery tax set to expire, and reinstating the practice of raising property taxes annually in line with inflation, a move that could generate $56 million in 2026 alone. Ride-hailing surcharges, currently applied downtown and at airports, could be extended to other congested neighborhoods, and fines for false fire or burglar alarms could also increase.
Beyond efficiencies and revenue, a smaller set of proposals looked at structural changes in how the city allocates its budget. This third category includes five additional proposals, such as outcome-based budgeting, which would tie city spending more closely to measurable results rather than tradition or politics.
Even as property tax revenues weaken, another set of long-term challenges comes from decisions made years ago to privatize city assets. The Interim Report warns that this trend directly affects the city’s primary revenue source:
“Declines in downtown commercial property values, particularly office buildings, have a direct impact on property tax revenues. As assessments are adjusted downward to reflect market conditions, the city and other taxing bodies collect less. This erosion of the downtown tax base is a major fiscal vulnerability, since commercial properties historically have shouldered a disproportionate share of the overall property tax burden.”
The report’s authors noted that while property taxes remain central to Chicago’s revenue system, falling downtown values could create ripple effects, shifting more of the burden onto homeowners and neighborhood businesses. For residents who have long felt that large landlords were given a pass, the acknowledgment is striking: it confirms that weakening downtown assessments are starving city coffers at the very moment new revenues are needed most.
Adding to the city’s difficulties are the long-term privatization deals – like parking meters, the Skyway, and other asset leases – struck by previous administrations. These arrangements gave the city large upfront cash infusions but at the cost of forfeiting revenue streams that could have provided stability for decades. The Interim Report is blunt about their consequences:
“Contracts such as the parking meter lease are binding agreements with long horizons. Renegotiation is extremely difficult, and outright cancellation would expose the city to significant legal and financial penalties. These deals limit the city’s flexibility for decades and underscore the importance of avoiding similar arrangements in the future.”
In plain terms, Chicago sold off parts of its financial future to cover short-term needs. While those contracts cannot realistically be undone, their legacy is a city that enters this budget season with fewer options and diminished flexibility. When combined with declining downtown tax collections, pension obligations, and higher borrowing costs, it helps explain why the current deficit is the largest in Chicago’s history.
Still, no single issue weighs more heavily on the city’s finances than pensions. The city is responsible for four main funds: Police, Fire, Municipal employees, and Laborers. Police and fire pensions represent the largest share of the unfunded liabilities because of higher benefits, earlier retirement ages, and survivor benefits. In FY2025, police and fire pensions together accounted for more than half of the city’s required pension contribution.
The crisis stems from two main causes. First, for decades city leaders failed to make the required contributions, instead diverting money to cover other expenses. This chronic underfunding allowed the unfunded liability to balloon into the tens of billions. Second, benefit structures, especially for police and fire, allow retirement at relatively young ages with full benefits, a practice that is costly over time. Add to this the fact that the Illinois Constitution includes a pension protection clause, which prevents reductions in benefits for current workers and retirees, and the city has little room to maneuver.
There are also quirks that have added to the burden. Some public officials in the past were able to qualify for pensions after just one term in office, and others collected multiple pensions by working in different government roles. These practices have been curbed for employees hired after 2011, who face later retirement ages and lower benefits, but older workers remain in the system and continue to drive costs.
Adding to the confusion is a common misconception about teachers’ pensions, which are in fact funded separately from the city budget. The Chicago Teachers’ Pension Fund belongs to Chicago Public Schools, which is a separate unit of government with its own budget. That pension system is funded primarily through CPS revenues and local property taxes. By contrast, the City of Chicago is responsible for four other funds—Police, Fire, Municipal, and Laborers—which together account for more than $36 billion in unfunded liabilities. These are the pensions driving the city’s current budget deficit. In other words, teachers’ pensions are a major challenge for the school district, but they are not part of the $1.1 billion hole in the city’s Corporate Fund. The confusion arises because taxpayers ultimately support both, but they flow through different budgets.
What sets this Task Force apart from previous efforts, members argue, is the breadth of perspectives involved. The 24 volunteers represent labor unions, business leaders, community organizations, policy think tanks, and philanthropy. They include figures like Ronald DeNard of United Way of Metro Chicago, who has overseen financial turnarounds at multiple public agencies, and Andrea Sáenz of the Chicago Community Trust, who brings experience in philanthropy and education. Their varied expertise is meant to ensure that the proposals balance fiscal impact with fairness, particularly for vulnerable communities.
But even with broad representation, implementing many of these ideas will require tough negotiations and, in some cases, legislative action. Roughly 90 percent of city employees are represented by collective bargaining agreements, meaning any proposal involving furloughs, benefit changes, or reassignments must be negotiated with unions. In addition, some proposals would require changes to city ordinances or even state law, particularly those involving taxes or pensions.
The report is careful to note areas of dissent among members. Some argued that hiring freezes could backfire by driving up overtime costs or straining already short-staffed departments. Others questioned whether furloughs could harm employee morale. Still, by including these disagreements in the report, the Task Force sought to demonstrate transparency and provide city leaders with a realistic picture of the trade-offs involved.
For residents, these policy debates translate into real-world effects on fees, taxes, and city services. The intention, according to Task Force leaders, is to preserve essential services while restoring fiscal stability. The next few months will be critical as Mayor Johnson and the City Council weigh which of the proposals to adopt. The mayor will present his 2026 budget proposal this fall, and hearings will determine how much of the Task Force’s menu makes its way into law.
The release of the Interim Report is only the beginning of the process. By May 2026, the Task Force plans to deliver a Final Report that will take on more entrenched problems like unfunded pensions and the growing costs of legal settlements against the city. That report will also include input from a new community engagement subgroup to ensure residents’ voices are part of the conversation.
The co-chairs stress that what happens next will determine whether Chicago seizes the moment for reform or slips deeper into crisis. For now, the message from the Task Force is one of urgency and possibility. “Together, we can transform this fiscal crisis into a catalyst for lasting change,” Freeman-Wilson and Reynolds wrote in their joint statement. “By acting now, we can reinforce Chicago’s financial foundation, protect the services residents rely on, and build a future that is resilient, equitable, and prosperous for all 77 communities.”
Chicago’s fiscal problems have been decades in the making, but city leaders now face a narrow window to act before the imbalance grows even worse. Whether residents experience higher taxes, new fees, or leaner government operations depends on the choices made in the months ahead. What is clear is that the era of quick fixes is over. Without long-term solutions, the city’s future competitiveness—and the quality of life for its residents—hangs in the balance.
Readers can visit the Chicago Crusader website for links to the full Chicago Financial Future Task Force Interim Report, Task Force member bios, and a Frequently Asked Questions section.
The Task Force has also released a YouTube video, “Understanding Chicago’s Budget: A Family Friendly Guide,” to help residents better understand how the budget works.
The Crusader will continue to provide ongoing coverage of the Task Force and the City as recommendations are debated and implemented.