Chicago Mayor’s $16.555B 2026 Budget Proposal Relies on Revived ‘Head Tax’ on Big Businesses, $1B TIF Surplus to Address $1.189B Projected Deficit

Relevant Documents:
Press Release
2026 Proposed Budget Overview

Chicago Mayor Brandon Johnson unveiled a proposed $16.555 billion budget for 2026 that addresses a projected budget gap of more than $1 billion with a host of recommended tax increases, including a “head tax” of $21 per employee on businesses with 100 employees or more, which is projected to raise up to $100 million per year. City officials now estimate next year’s budget gap at $1.189 billion, up from a previous estimate of $1.150 billion.

The proposed budget relies on the declaration of a $1 billion tax increment financing, or TIF, surplus, the largest in city history, which the mayor said would enable the city to make its largest investment ever in Chicago Public Schools, or CPS. The TIF surplus will provide an estimated $232.6 million for the city’s corporate fund and $552.4 million for CPS. The mayor’s spending plan also contemplates the use of $166 million of unspecified “financing” proceeds.

The spending proposal also reduces a planned advance pension payment, which would save $117.8 million, according to budget documents. During last year’s budget process, city CFO Jill Jaworski defended the practice of making advance pension payments, which last year totaled $272 million. The payments aim to halt the growth of unfunded city pension liabilities and are a major factor supporting the city’s credit rating, according to Jaworski. The proposed budget has a $2.76 billion pension appropriation for the city’s four pension funds.

During a budget address before city council today, the mayor framed his spending plan, dubbed the “Protecting Chicago Budget,” as a response to federal funding cuts by President Donald Trump’s administration in areas such as healthcare, nutritional assistance, education, public safety and housing. For example, the mayor said the budget would not propose the continuance of a 1% grocery tax that would raise about $80 million because of Trump’s cuts to the Supplemental Nutrition Assistance Program, even though Jaworski and city Budget Director Annette Guzman emphasized the importance of the tax for city finances earlier this year in urging lawmakers to approve an extension of the tax.

All told, Johnson is proposing $437.5 million of “revenue enhancements” through taxes and fees. The head tax, which is being called a “community safety surcharge,” would rise automatically with inflation, according to the proposal. Chicago imposed a head tax from 1973 and 2014 of between $2 and $4 per month per taxable employee. While proponents say the tax helps defray costs of services needed by large-scale businesses, opponents say the tax is a “job killer” because it provides a direct disincentive to hiring employees, according to a Civic Federation report.

Other proposed taxes include a social media amusement and responsibility tax, or SMART, which would levy a charge on social media companies of 50 cents per active user over 100,000 in Chicago and is expected to generate $31 million to fund mental health services. Other taxes aim to counter what Johnson calls the Trump administration’s “massive tax cuts for large corporations and the ultra-rich” by targeting the wealthiest Chicagoans and the largest corporations in the city. These include a “yacht tax” that would increase the boat-mooring tax at city harbors to 23.25% from 7%, an increase in the city’s vacant building fee, and taxes on “Big Tech” companies through an increase in the city’s personal property lease tax, or PPLT, rate. The city said it also expects to raise $18.3 million through asset sales and special event cost recovery and indicated that improved revenue projections would add another $20.4 million

The mayor also says the administration would realize more than $200 million in cost savings, including $100.6 million through a hiring freeze and other personnel savings and $111.9 million in operational efficiencies. The city would also achieve $80.9 million of savings by shifting funding sources for certain appropriations, according to budget documents. Johnson said his spending plan does not contemplate layoffs.

The proposed 2026 budget for all funds totals $16.555 billion, comprising $12.7 billion in local funds and $3.8 billion in grant funds, which is 3.2% less than last year’s budget, as shown below:

Officials said that the decrease in the overall budget reflects the expiration of one-time pandemic-era recovery grants and a reduction in pension payments, which are projected at $2.76 billion next year versus $2.906 billion this year. Debt service, however, is projected to increase to $552.1 million in 2026 from $539.7 million, according to the budget proposal.

Officials note that the corporate fund, which would increase by 4.7% under the proposed spending plan, and other local funds are increasing as a result of inflation and rising personnel costs. The 2026 spending plan also “advances strategic investments to protect residents while reducing reliance on one-time resources and replacing them with recurring, sustainable revenue sources,” according to the budget documents.

Major funding sources for the $6.06 billion corporate fund in the proposed budget and how they compare to the current budget are outlined below: