A series of new lobbying priorities announced by Chicago Mayor Brandon Johnson at a press conference last week included tweaks to revenues the city currently receives from the state government, but none of the potential new revenue proposals floated by both his administration and members of City Council during the city’s budget hearings in late 2024. 

Revenue was a recurring topic during those contentious hearings, which ran longer than any municipal budget season in the Council’s recent history and culminated in a unanimous rejection of the mayor’s proposed property tax lobby and a 27-23 vote on the final budget.

With existing obligations – not least of them historically underfunded pension debts – consuming an ever-larger share of the city’s revenues and federal pandemic funding almost entirely spent or expiring, revenues to cover existing expenses are already looking shaky for future years, even before any talk of new or expanded services. 

The city isn’t short on ideas. A new subcommittee on revenue considered a list of possibilities in June of 2024 (thus far the subcommittee’s only meeting, apart from a joint hearing on hemp regulation with the health committee), and more were discussed during budget hearings, with proposals from both alderpersons and city staff aired in the back-and-forth between council members and the mayor’s budget team.

Some of those proposals would require legislative changes at the state level. BGA Policy compiled a list of state-dependent revenue policies that were proposed at City Council in 2024, either during the 2025 budget hearings or in the revenue subcommittee. Some would make Chicago an outlier among the country’s five largest cities, while others would bring the city more in line with its peers:

Mayor Johnson’s office did not respond to a BGA request for comment on the administration’s outreach or lobbying efforts on any of the above revenue proposals. 

In public remarks on Springfield lobbying priorities, Johnson’s staff highlighted the Personal Property Replacement Tax (the state-level corporate income tax, which is split between local units of government), a tax on prepaid cell phones and calling cards, and extending the existing 911 surcharge, all of which would have direct city revenue impacts. The list also included school board funding and funding for the city’s transition to a single, unified system homelessness and emergency temporary housing.

Without mayoral backing, or an organized lobbying push from City Council independent of the administration, more ambitious programs that would add new revenue streams for the city coffers are in danger of languishing through yet another budget season. 

Professional Services Sales Tax

Chicago is the only city among the country’s five largest that does not levy a professional services tax, either directly or through a state sales tax, although New York City’s is limited to a fairly narrow spectrum of health and beauty businesses. Other large cities tax a broad range of services including legal, accounting, marketing, events and other categories. 

Houston levies a surcharge on the state sales tax, while New York City, Los Angeles and Phoenix levy theirs independent of the state taxing structure. Assuming a tax on services levied at the same rate as the existing sales tax formula, an Illinois tax would be 6.25%, with the state retaining 5% and local governments like Chicago receiving 1.25% . 

In the initial hearing for the mayor’s 2025 budget last fall, Office of Budget and Management Director Annette Guzman referred to the need for a coalition of municipalities lobbying Springfield for a sales tax change. “That’s something we’re going to be working on next year,” Guzman said. However, the professional services sales tax was not among the lobbying priorities highlighted by the mayor’s administration this year. 

As an expansion of an existing levy, a service sales tax would be one of the most mechanically simple revenue expansions the legislature could enact that would aid Chicago’s municipal finances. It could be among the more palatable for state legislators as well, since the state budget would receive the lion’s share of the new funds. 

Even so, Governor Pritzker’s 2026 budget proposal, currently before the legislature in Springfield, does not include any expansion of the state sales tax to services. 

City Income Tax

Of the five largest U.S. cities, New York City is the only one to levy a direct income tax, although other large cities such as San Francisco, Baltimore and Birmingham do as well. Over a dozen states have frameworks for local income tax collection, including neighboring Iowa and Indiana. Methods of collection vary, with some cities setting their own rates and collections independently and others applying a piggyback rate to state income tax collections. 

New York City piggybacks on state payments, with city residents paying a 3.876% income tax to the city on top of a graduated state income tax that can range from 4% to 10.9%. 

Chicago and Phoenix both receive a distribution of income taxes collected by the state, rather than imposing their own taxes directly. 

Illinois currently collects a flat 4.95% personal income tax at the state level. Chicago and other municipalities receive 6.47% of those receipts, distributed based on municipal population in proportion to the total state population, via the state’s Local Government Distributive Fund. 

LGDF was originally established at 10% of income tax receipts, but was amended in conjunction with state income tax increases in 2011 and 2017, leaving municipalities with a smaller share of revenues. Individual municipalities and the Illinois Municipal League have advocated unsuccessfully since the changes for a return to the 10% threshold.

Arizona uses a similar system, Urban Revenue Sharing, which has varied over the years but always offered a higher share of revenue than Illinois’ LGDF, with municipal shares ranging from 12.8% to 18% of income tax revenues. 

State-level decisions about what constitutes income for tax purposes also impact city coffers. Illinois is one of a handful of states that fully exempts all forms of retirement income from taxes, which lessens the overall tax receipts from which Chicago receives its LGDF share. New York taxes most private retirement income at the state level, impacting the local calculation in New York City as well, while California taxes retirement income but does not have a local distribution or piggyback. 

Real Estate Transfer Tax

New York, Los Angeles and Chicago all levy a real estate transfer tax, while Houston and Phoenix do not. 

New York City and state both have variable real estate transfer taxes depending on the sale value and type of property, with a minimum rate of 0.4% state tax and 1% city tax. That 1.4% composite rate can easily increase, however. The state of New York adds an additional 1% for sales over $1 million, while New York City increases rates at the $500,000 and $2 million thresholds. A recent state law adds additional state taxes to sales within New York City of over $3 million for residential properties and over $2 million for other property types, resulting in a significantly higher composite tax collection from high-value sales. 

Los Angeles in 2022 shifted to a graduated real estate transfer tax rate that starts at 0.45%, rising to 4.5% for properties over $5.15 million and 5.95% for properties over $10.3 million. In June of 2025 the thresholds will rise to $5.3 million and $10.6 million, respectively. 

Chicago imposes a flat 0.75% rate on top of state, county and CTA taxes for a composite 1.2% rate on real estate transfers. Voters in 2024 rejected a referendum backed by Mayor Johnson that sought to to transition to a graduated rate, dealing a significant blow to Johnson’s hopes for new progressive revenue at the local level. 

Commuter Tax (Payroll)

Large cities with outlying suburbs periodically explore ways to raise revenue from non-resident visitors and commuters, often in the context of transportation infrastructure and expenses. 

Direct service or consumption taxes on transportation-related are common at both the city and state level nationwide – Chicago levies several, including its ridesharing fees and its share of state gas and vehicle tax revenues – but direct payroll taxes on out-of-municipality employees, commonly referred to as commuter taxes, are rarely used.

New York City had a commuter payroll tax until 1999, but is now prohibited by state law from imposing a tax on out-of-municipality employees. Instead the state enacted a Metropolitan Commuter Transportation Mobility Tax on payrolls and self-employment income within the city and from neighboring counties, with revenues dedicated to the Metropolitan Transportation Authority. None of the other largest U.S. cities levy any form of payroll tax on out-of-municipality employees working within city limits. 

Public Bank

A growing public banking movement has won gains in other states recently, most substantially in California where the 2019 Public Banking Act allowed for the establishment of a limited number of city-run banks. San Francisco’s Board of Supervisors in 2023 approved a plan to create the state’s first municipal bank, while Los Angeles and Sacramento authorized feasibility studies.

Public banks encompass duties beyond simple revenue generation, and are far more complicated implements than taxes or fees for services. Establishment of a city bank would require enabling legislation, as well as regulatory oversight at both the state and federal level.

One primary appeal of a city-operated bank would be more affordable financing. Debt and debt service make up a significant portion of the city budget, with the city currently at the mercy of private markets for borrowing and bond issuance. A public bank opens up the possibility of a lower-interest lender, offering revenue with less long-term associated costs.

Public bank proposals have been floated in Chicago before, most notably by former 47th Ward alderperson Ameya Pawar, who advocated for a city bank while an alderperson and made it a central campaign plank during his unsuccessful 2019 run for treasurer. 

A Chicago public bank could be capitalized with the city’s own deposits and investments – currently held at private institutions authorized by the City Council. Like other banks, a city bank could take deposits from retail, corporate and other government clients. 

Municipal banking has appeal across ideological spectra – in the 2023 mayoral campaign, progressive candidate Ja’Mal Green and the more conservative Paul Vallas both proposed municipal banks. Green emphasized a public bank’s ability to invest in historically underserved communities, while Vallas advocated for a public bank as an underwriter for major projects, including private investments like the recently-approved Chicago casino. 

The Bank of North Dakota currently is the only major public bank in the United States. As a model for a city bank, it offers some caution against visions of a public underwriter offering no- or low-interest capitalization for public projects: Most of the bank’s activity consists of loans to small private banks in the state.

Financial Transaction Tax

A perennial feature of progressive candidates’ campaigns, a financial transaction tax would levy a fee on sales of stocks, bonds, derivatives and similar financial instruments. Chicago’s large financial services sector creates a tempting target for such taxes, but the increased digitization of trading would make collections challenging for the city and relocation relatively easy for tax avoiders. 

No major U.S. city has levied a financial transaction tax since the abolition of New York City’s in 1981. 

Mayor Johnson campaigned on a plan to impose a financial transaction tax, claiming a levy ranging from$1 to $2 per transaction could raise as much as $800 million annually. However, state law currently forbids financial transaction taxes, and Governor Pritzker has said he would veto any attempt to create one, making it one of the least-likely Springfield revenue options available to Chicago.

Without a substantial lobbying effort from the city, of course, all of the above revenue streams remain theoretical – interesting ideas on paper, but unlikely to help plug the city’s revenue gap in the upcoming budget. More complicated instruments like a state bank would almost certainly face multi-year implementation challenges, even after legislative approval, pushing out actual relief for the city’s coffers still further. 

Appointments of new lobbyists and a public announcement of their priorities shows that Johnson’s administration is at least reaching out to Springfield. So far, however, the focus remains on protecting existing revenues, with the more grandiose proposals from City Council unaddressed for now.