Mayor Lori Lightfoot addresses the city Thursday. [Hannah Alani/Block Club Chicago]

The $838 million budget gap facing Mayor Lori Lightfoot and her finance team as they work to craft a 2020 spending plan is just the tip of an iceberg of debt facing Chicago officials and residents.

After Lightfoot stepped off the flag-festooned stage at the Harold Washington Library Center Thursday evening, her team released the city’s annual budget forecast, which detailed the city’s dire financial condition not only for 2020, but also for 2021 and 2022.

Even if the country defies predictions that a recession is imminent and the economy experiences moderate revenue growth and the city is able to control expenditures, Lightfoot and the City Council face a projected deficit of $901.1 million in 2021 and $799 million in 2022 — and that’s in the best-case scenario, according to the forecast.

But if the economy slides into a recession, the city’s projected deficit will swell to $1.6 billion in 2021 and $1.74 billion in 2022, according to the forecast.

Even if the economy is much the same in the fall of 2021 and the fall of 2022 as it is right now, Chicago’s financial situation will worsen, and leaders are expected to face a $1.18 billion deficit in 2021 and $1.16 billion deficit in 2022, according to the forecast.

Lightfoot on Thursday said she would not “sugarcoat” the “enormous, systemic financial challenges we have struggled with for decades…and the even greater financial challenges we face going forward.”

That is why Lightfoot has emphasized the need for state lawmakers to approve major structural changes to the way the city meets its obligations — while putting the blame squarely on Mayor Rahm Emanuel, without mentioning him by name.

“We walked in to a staggeringly large budget deficit for next year,” Lightfoot said. “And what was worse, we were not left with a credible plan on how to fix this massive problem.”

In 2020, personnel costs are expected to rise by $296.3 million, even as the number of city employees dropped 8.75 percent since 2008 because of wage growth and increasing pension contributions, according to the forecast.

In addition, the city expects to have to pay $89.7 million more to resolve lawsuits, according to the budget forecast.

Pension pressure

Approximately a third of the city’s budget gap is due to the bill for the city’s pensions, which will jump 31 percent in 2020 due to a change in state law that ties payments to actuarial estimates. 

The city owes its pension funds for police and fire retirees an additional $281.2 million in 2020, bringing the total due to those two funds to $1.1 billion, according to the forecast.

“I don’t see the provision of pensions or city workers as the problem,” Lightfoot said. “The key problem is the decades’ long failure to meet our pension obligations and fix the structural problems that have led to this crisis.”

The bill for the city’s pensions will only grow, Lightfoot warned.

“No matter what we do for this coming budget, Chicago will be on the hook for over half-a- billion in new pension obligations over the next three years,” Lightfoot said. “Dedicated city workers have fulfilled their careers with the agreement that they will retire with the dignity and the certainty pensions afford. Our obligations are not optional.”

However, Lightfoot called for “structural changes” to the way Illinois pays its pensions, without detailing what specific changes she favored.

In July, Gov. JB Pritzker suggested the consolidation of the state’s downstate police and fire pension funds could elicit higher rates of return on investments the funds make in the market, and a task force is studying the feasibility of consolidating the state’s downstate public safety pension funds. 

Related: Pritzker floats unified investment pool as counter to Lightfoot pension plan, but analysis not rosy

In her speech, Lightfoot noted that “cities and towns in every corner of Illinois are grappling with rising pension costs.”

“Solving our shared pension problems will require the entire state to come together,” Lightfoot said.

Related: Downstate police and fire pension funds see jump in unfunded liabilities

While meeting with the Crain’s editorial board Friday, Lightfoot called the annual 3 percent cost-of-living increase in pension benefits for municipal and labor retirees “unsustainable,” as inflation hovers around 1 percent annually. Any change to that provision would require an amendment to the Illinois Constitution.

Such a proposal was floated by Emanuel before he left office, and was greeted with howls of outrage from labor groups — many of whom are now staunch supporters of Lightfoot. A spokesperson for the mayor issued a “clarifying” after the session to note that she opposes changing the constitution.

But without changes to the city’s pensions, Lightfoot said she would have no choice but to ask the City Council to approve a property tax hike — even as many aldermen still have political scars from the 2015 vote to increase property taxes by $543 million over four years to fund police and fire pensions.

“I want to avoid that measure as much as possible, but if we don’t get the structural changes that our pensions need…we will be presented with very hard and limited options,” Lightfoot said.

But pushing those changes through a General Assembly filled with lawmakers leary of voting for anything an opponent could cast as a bailout of Chicago will be no small task for the rookie mayor, who has never before held elected office and is still working to build relationships in Springfield.

“People in this state know — as I do — that I-80 is not a border,” Lightfoot said. “That there cannot be a ‘Chicago’ versus ‘The Rest of the State.’”

All of the specific revenue-generating proposals Lightfoot backed in her speech would require a new state law, including a push to make the city’s Real Estate Transfer Tax graduated — offering relief for those who sell homes for less than $500,000, while increasing the tax on the sale of more expensive properties.

That has already drawn fierce condemnation from advocates for homeless men and women in Chicago, who had been pushing to raise the transfer tax on homes worth more than $1 million and earmark those funds for additional services.

Lightfoot acknowledged those complaints in her speech, but did not offer specifics about her plans to boost help for the homeless.

“We are committed to addressing homelessness and housing instability, and putting real resources toward these problems,” Lightfoot said.

Lightfoot also backed efforts to impose a tax on those who commute into the Loop by car, as well as new fees on ride-hailing services like Lyft and Uber, without offering a specific proposal. A congestion fee would require a new state law to be implemented, while the City Council could hike ride-hailing taxes on its own.

“We are exploring revenue options to address rampant congestion that solves the problems of traffic, pollution and other issues, while simultaneously bringing in a fair source of funding,” Lightfoot said.

The mayor also vowed to “stand up a robust and healthy cannabis industry” after lawmakers passed a law legalizing the drug, set to take effect Jan. 1.

But Lightfoot will need help from lawmakers if Chicago is to finally get a casino that could offer  “a structural solution to address long-term problems, not a one-time fix.”

But if that doesn’t happen, Lightfoot issued a pointed warning.

“We will be forced to make painful choices on finding other revenue sources — and we all know what those are, the sources we wish to desperately avoid,” Lightfoot said.

Related: Lightfoot: Chicago casino study proves I was right about problems with state gambling law

Lightfoot’s new strategy

In her speech, Lightfoot said she was focused on “laying the foundation for a strategy that shifts the focus to investing in our people, our neighborhoods, and not just in our central business district. We are working to create a real growth strategy that deals everyone in, regardless of neighborhood or zip code.”

That new strategy is key to solving the long-term financial challenges facing the city, Lightfoot said.

“Small businesses, and homeowners, individuals and community-based institutions must be part of this strategy,” Lightfoot said. “We must expand opportunity, expand our tax base and expand our population. We need to continue to give residents and businesses of all stripes reasons to stay, to come and to grow.”

Lightfoot said she would make decisions about tax hikes and new fees with two key principles in mind: the need to “relieve the financial burden on those least able to afford it” and to avoid “driving businesses out of Chicago.”

While Lightfoot’s roughly 25-minute speech was light on specific sources of new revenue, she vowed to make government operate more efficiently and effectively, promising taxpayers would see a return on efforts to reform the city’s workers’ compensation program and protect the city from costly lawsuits by developing a first-ever risk management program.

Lightfoot also vowed to replace high-interest debt and eliminate some short-term loans, while promising to crackdown on employee absenteeism, eliminate contracts with vendors that don’t hold up their end of the agreement and crackdown on unbudgeted overtime as well as excessive spending by the chairs of City Council committees.

Lightfoot is also hoping to restore Chicagoans’ faith in their city government — and ease the sting of certain tax hikes — by fulfilling her central campaign promise and root out corruption at City Hall, where several federal corruption investigations are churning behind the scenes. An initial package of ethics reforms passed 50-0 in July, with another proposal to expand public access to the results of investigations by the inspector general.

“These reforms that we have made are a critical component of showing you, not just saying it, but showing you we heard you and we will be better fiscal stewards of your hard earned tax dollars,” Lightfoot said.

Political risk to agenda

Lightfoot also used her speech to serve notice that she would not shelve her legislative agenda to focus on the massive budget gap.

As aldermen return from their August break, they will face a full docket of proposals from the mayor, including a push to change the way the city enforces its vehicle sticker laws spurred by reporting by ProPublica Illinois and WBEZ designed to bring relief to tens of thousands of mostly black, low-income motorists and lead to a reduction in bankruptcy filings.

Lightfoot also vowed to push through an ordinance hiking the city’s minimum wage to $15 an hour by 2021 — four years before the rest of the state — and end “water shut-offs for residents facing significant financial hardships.”

City officials have yet to detail what both proposals would cost the city.

“These initial steps are important to shore up individuals and families who aren’t just living paycheck to paycheck, but are constantly on the cusp of financial ruin,” Lightfoot said. “They need the ability to go to bed at night knowing that they can take care of themselves and their families. That Chicago has not abandoned them. Growth and financial wealth must include everyone.”

But Lightfoot may find herself caught between a rock and a hard place — determined to make good on the progressive proposals that she campaigned on while forced to spend the political capital she accumulated in her sweeping victory in April’s runoff.

Yes, some of our solutions will be hard,” Lightfoot said. “Yes, they may involve putting ourselves at risk. And if it means that I sacrifice myself politically, so be it in pursuit of the right thing.”