Chicago is bracing for more taxes after progressive Brandon Johnson's surprising win this week.
The mayor-elect's proposed levies on corporations, financial securities and the rich would add pressure on the business community in the nation's third-largest city that's already grappling with rising crime, high-profile headquarter departures and fragile finances.
"He wants to put more of the burden on the business community," said Richard Ciccarone, president-emeritus of Merritt Research Services, a muni research firm. "There's some anxiety about the approach that he'll use and solutions. You don't want to start a negative spiral."
The unexpected victory on Tuesday by the 47-year-old Cook County commissioner and former teacher over Paul Vallas, the ex-schools chief who had the business community's support, comes as Chicago's finances face growing strain. Its pension funds are short $34 billion, and the city is projecting a $474 million deficit next year as a recession looms.
Johnson, who is backed by the powerful teachers union, surprised many when he beat incumbent Lori Lightfoot in the first round, making her the first mayor of Chicago to lose a reelection bid since 1983. He appealed to the city's largely progressive voter base and gained momentum by linking his Democrat opponent to the Republican party. He also benefited from higher turnout of younger voters compared to the first round of voting on Feb. 28.
He's now tasked with managing a city that has been slower to recover from the pandemic than peers such as New York, Washington and Los Angeles. Chicago has also struggled with crime and high-profile corporate departures, including billionaire Ken Griffin's Citadel and plane maker Boeing Co.
During his campaign, Johnson proposed $800 million in new taxes, without raising property levies, to deal with the deficit and invest in residents and neighborhoods across the city, not just downtown.
He also favors a $4-per-employee tax on large companies that have at least half of their operations in Chicago and has floated taxes on airlines that pollute the city's air. Additionally, his plan includes a $1 or $2 tax per securities-trading contract — a measure opposed by Chicago's iconic exchange giants, CME Group Inc. and Cboe Global Markets Inc.
Johnson argues the city's wealthiest residents and businesses need to contribute more in order to tackle the city's deficits and address problems in education, transportation and health.
'Considerable harm'
A securities tax would "only cause considerable harm," a Cboe spokesperson said Wednesday, adding that the exchange has no plans to leave Chicago. The company officially took Chicago out of its name in a 2017 rebranding.
Many traders have already relocated to states such as Colorado, Florida and Tennessee, and parking lots around the Chicago Board of Trade are rarely full, P.J. Quaid, a senior vice president at R.J. O'Brien, said in a telephone interview. The "edge," or profit, on some trades is about 5 cents, Quaid said.
"So if you're going to tell the last remaining people that they are going to pay $1 a contract, the floor would close overnight," Quaid said. "It's just another piece of private industry that would be decimated by these tax policies."
'Job killer'
Many of Johnson's plans need the backing of the city council and in some cases, the state of Illinois. Some of his ideas have been floated in the past and didn't materialize, or ended. Former Mayor Rahm Emanuel in 2011 called the head tax, phased out in 2014, a "job killer."
The Chicagoland Chamber of Commerce said it wants to work with Johnson to find solutions for the city's challenges but opposes taxes on employee headcount, financial transactions and airlines. It's also against his push for a higher real estate transfer tax, the chamber said in an emailed statement.
Concern on progressive spending pledges has always been about how they translate to fiscal reality — "especially if we are headed into a recession," said Dora Lee, director of research at Belle Haven Investments, which holds Chicago debt as part of $15 billion in muni assets.
The Civic Federation, which tracks the city's finances, will examine the feasibility and economic impact of Johnson's proposals as the new mayor faces challenges including budget shortfalls, said Sarah Wetmore, acting president of the government watchdog.
The city shed its junk credit rating in November after paying more into pensions. Lightfoot's administration increased its annual retirement fund contributions by $1 billion over the last three years.
"We're hopeful mayor-elect Johnson will maintain fiscal discipline and continue on the path that earned the city several credit-rating upgrades last year," Molly Shellhorn, senior research analyst for municipals at Nuveen, which holds Chicago debt, said in an emailed statement. "Investors will be looking for additional detail on the potential impacts of some of Johnson's new tax proposals."
