The downtown Chicago office market recorded record-high rents and vacancies at or near all-time lows in 2016. The city is a robust tech hub, bolstered by an extensive transportation network and proximity to one of the busiest airports in the world—connecting Chicago with other U.S. and foreign markets. Unemployment continues to diminish as graduates from nearby top-tier universities enter the local workforce in a diversified economy. Despite this economic growth, the City of Chicago and the State of Illinois continue to grapple with the budget crisis.
Biggest deficit in a decade
The Illinois budget deficit stands at $9.6 billion. Fitch Ratings placed the state’s credit rating at BBB in February, two levels above the lowest rating. There has not been a comprehensive budget implemented in Illinois in over 20 months. (The stopgap budget, which lasted 6 months in 2016, excluded.) Without a budget, political decisions snowball into more complicated and intricate issues. Time and energy must be spent, mostly from court orders on who can get paid by the state and which agencies receive funds in absence of a budget. Workers’ compensation, spending cuts and pension funds continue to lodge a wedge in compromise.
How to close the gap and its impact on real estate
The state budget is a thorny issue with numerous components, requiring a comprehensive set of solutions. In order to mitigate the shortfall in revenue the state may consider various solutions, including increased income and corporate tax rates, spending cuts, broadened sales taxes and augmented property taxes. There is no question that tough solutions must be passed, but policymakers need to consider the long-term consequences. While property taxes provide revenue, they can place a burden on businesses and homeowners. Increased property taxes would ultimately be passed on to tenants, and may have long-term implications for the growth of businesses.
Policymakers will push for more stopgap budgets in 2017
The most recent stopgap budget proposal aims to spend $817 million on social service programs and state universities. These agencies and schools cut where they can on their own. For example, Northeastern Illinois University decided to cancel three school days to mitigate costs. To this point, the growth of Chicago’s economy and the migration of talent to the city have outweighed corporate concerns over the budget stalemate. However, the issues will not go away without renewed political leadership, and the business community needs clarity from City Hall and Springfield.
Sources: JLL Research, Commission on Government Forecasting and Accountability, Tax Foundation, Chicago Tribune