Ernst & Young Report Details Chicago’s Wasteful Spending: It’s Worse than You Think

There is a reason Mayor Brandon Johnson stalled the release of Ernst & Young's Financial and Strategic Reform Options report

In May of this year, the City of Chicago, facing a projected $1 billion budget shortfall over the next two years, paid “Big 4” accounting firm Ernst & Young (EY) $3.2 million to analyze the city’s spending and identify potential savings and efficiencies.

A controversy arose when the mayor initially refused to release the report, instead preferring to “filter” it, in the words of Budget Director Annette Guzman. Aldermen were rightly suspicious of this approach, assuming that the mayor’s office would delete proposals that they did not agree with.  

In the meantime, in mid-October, the mayor released his “Protecting the People” budget, which proposed $500 million in new taxes — including (most controversially) a head tax which he gave the Orwellian name of a “Community Safety Surcharge”, as well as a tax on cloud computing that would be the nation’s highest, and large new taxes on social media and ride sharing. In addition, the budget relies on one-time gimmicks such as the release of TIF funds.

A few days later, the EY report was released. It proposed cost savings and revenue generation ranging from $530 million on the low end to $1.4 billion on the high end.  When asked why he is not implementing these ideas, the mayor variously has stated “it takes time,” “it’s a process,” and “I won’t negotiate my values.”

The EY report, written in dry consultant language, makes clear what most Chicagoans have long suspected: There is massive waste in Chicago government. After all, overall spending (appropriations) has grown by about 40 percent in the past five years, far outpacing the rate of inflation.

The report recommends raising revenues by increasing fees for certain services that the city performs at a loss, such as police coverage and overtime for parades and movie productions. It also advises raising certain fees and fines to be in line with other cities. However, the really interesting part (and most of the financial impact) is in the cost savings. Austin Berg over at Illinois Policy Institute has commendably been out front on this issue, but it is worth a deeper dive just to illustrate the magnitude of the problem.

Too many managers, inefficient staffing ($148–$257 million annually)

Incredibly, many managers oversee only one to three direct reports rather than the usual six to eight that is considered best practice. This alone would save $37 million per year.   Correcting this excess, plus consolidating overlapping functions and using shared labor pools rather than more overtime would generate some of the largest savings.

Vehicle fleet costs ($17–$31 million in savings)

Chicago has 15,000 vehicles and a fleet budget of $145 million. Overall cost per mile is about five times the nationwide government fleet average. In addition, the average miles per year driven is only 7,000, compared to a nationwide government average of 33,400 miles per year. There is no utilization monitoring, and limited or no charge-back for personal use. Further, the city’s fuel cost per mile is about twice the nationwide government average for fleet vehicles. Overall, EY makes 20 recommendations to reduce fleet expenses.

Excess real estate ($147–$202 million in savings over 10 years)

The city’s management of its real estate is characterized by “underutilization and inefficiency.”  In particular, based upon the number of employees and their in-office requirements, the city could reduce its workspace by 24 percent. In addition, the city could consolidate or sell unused real estate and buildings.

Employee benefits ($80–$103 million annual savings)

This is the largest potential area of saving but would require renegotiation with employee unions. EY benchmarked Chicago’s benefits against those of New York, Los Angeles, Houston, Cook County, and the State of Illinois. Chicago employees pay significantly less for healthcare than the comparator cities. In fact, Chicago’s benefits are so generous that many working spouses of city employees forego their own employer’s health insurance and instead elect to be covered under Chicago’s more generous plans. Since 2019, benefit costs (mostly healthcare) have increased 64 percent (compared to an overall CPI increase of about 27 percent), despite the city having fewer employees. Bringing Chicago’s health benefits merely to the middle of the comparator cities’ cost would generate enormous annual savings.

Procurement ($55 –$111 million annual savings)

Finally, centralizing the procurement function and using Chicago’s combined purchasing power would result in significant estimated savings.

Mayor Johnson is uninterested in savings

Obviously, many of these proposed changes would take time and the savings could not all be realized within the next year. Yet the fact Mayor Johnson has distanced himself from the report and continues his refrain that he will continue to “invest in people” and “won’t compromise his values” doesn’t give Chicago’s beleaguered citizens much hope that relief is in sight. But of course, in the mayor’s latest budget proposal, dropped on the aldermen only minutes before Monday’s Finance Committee meeting, he proposes to adopt many of the fee increases recommended by EY. 

So apparently, the administration can move quickly when it wants to.