Chicago is facing a $1.2 billion projected budget shortfall for 2021 as it reels from COVID-19’s economic fallout, Mayor Lori Lightfoot announced Monday.

The gaping hole is worse than what the first-term mayor faced last year, when Lightfoot’s administration implemented a series of tax hikes and other reforms to close an $838 million gap.

But three months into 2020, the COVID-19 pandemic hit. Millions of Illinoisans were laid off as the state implemented stay-at-home orders, and huge swaths of the city’s economy shut down entirely.

Lightfoot said the city will have to rely on a mix of federal stimulus money, refinancing and borrowing to close out 2020 in the black.

“We will be scrutinizing all dollars spent with an eye toward maximizing jobs and wealth for Chicagoans,” Lightfoot said of 2021. She vowed to “lean in” to equity and inclusion, “not discard them as luxurious indulgences for easier times.”

But Lightfoot suggested that layoffs inside city government could be coming.

“A very difficult part of reimagining government will also include looking to our workforce, and making needed changes in places that are not being fully utilized during the remainder of this crisis and in our post-COVID-19 world,” Lightfoot said. “I don’t take this lightly. Our City workers are the backbone of this town’s middle class.”

The mayor also vowed to cut police overtime and reduce expensive legal settlements stemming from police misconduct. She addressed calls from protesters and activists to defund the police, saying it is not a binary choice.

“I have heard the calls of the mass movement we’ve seen in our streets and around the country,” Lightfoot said. “I agree with them on this: We need to get serious about the possibilities for alternatives, and continue the policy shift that we started last year in treating violence as a public health crisis, and responding with an array of interventions that may or may not involve the police.”

Lightfoot said as social services lose funding, police have become default responders for a host of problems they’re not equipped or trained to handle.

It could take months or years to recover from the economic downturn caused by coronavirus, Lightfoot said. The 2021 budget forecast released Monday gave the first glimpse into what the nearly three-month shut down did to local tax revenues.

Transportation taxes are projected to take the biggest hit. These include fees on rideshare and taxi rides and the mayor’s recently-implemented congestion taxes, which dried up as commuting to office buildings downtown all but stopped. Business taxes and the amusement tax, which includes fees on hotel stays and concert tickets, are also showing large decreases, according to the new budget forecast.

On Friday, the city posted the first quarterly budget report of 2020 as well, though final revenues won’t be tallied and audited for a while. That document shows the city got about $25 million less in revenue during the first three months of 2020 than officials had expected. But the total was still higher than for the same time period in 2019.

On a call with reporters after the mayor’s speech, Budget Director Susie Park and Chief Financial Officer Jennie Huang Bennett said the city is still making progress toward having a structurally balanced budget. If COVID-19 never had happened, the city would be facing a structural deficit of around $400 million, Bennett said.

“The expenditure side for 2021 is not new,” Park added. “It is really all about the revenue side.”

“There are certain revenues that are going to take a lot longer to recover,” Bennett said. “But there are also other taxes which we had seen take a fairly significant hit in the second quarter of 2020…which have seen material rebound since shelter in place has been lifted.”

Grappling with COVID-19’s impact on local revenues comes as the city sees another significant jump in what it must pay into the pension funds for city workers. The total amount the city will contribute to the four funds in 2021 will increase $130 million to $1.8 billion. The city is also on the hook for $1.9 billion in debt service payments, an almost $200 million increase over 2020. The city’s entire budget for 2020 was $11.65 billion.

During her speech Monday, Lightfoot acknowledged divisions within City Hall and criticism of her leadership over the last year.

“I need to push myself harder to work with people with whom I do not agree and who do not agree with me,” she said.

City officials are scheduled to host Facebook Live sessions all week from 6pm to 7pm to discuss the 2021 budget process. Monday’s session is a general overview, but each subsequent night has a different focus: Tuesday is public safety, Wednesday is human services, Thursday is infrastructure, and Friday is neighborhood and economic development.

Lightfoot will present a full 2021 budget proposal in October. The City Council will hold a series of lengthy hearings and vote on a final spending plan in November. By law, they must pass a budget by December 31.

Becky Vevea covers city politics for WBEZ. Follow her @beckyvevea.