(Bloomberg) -- The Chicago City Council on Tuesday approved a $12.8 billion budget for 2021 that relies on higher property and fuel taxes as well as a half billion dollars in savings from a large debt refinancing.The spending plan relies on almost $94 million from higher property taxes and $501 million in debt costs savings, according to budget documents. With help from cuts and increases to revenue, Mayor Lori Lightfoot closed a $1.2 billion deficit in the city’s $4 billion corporate fund, which pays for basic operations and services.“This was a very difficult budget, probably the most challenging in the history of our city,” Lightfoot said after the vote. “We’ve got many challenges and many roads ahead that we need to walk down the path together.”Lightfoot took on what she had called “painful” choices to fill the record budget shortfall as the Covid-19 virus and business shutdowns to slow its spread hit tax collections. Revenue fell while the need for city services like housing assistance, health care and small business aid climbed. Chicago is facing $30 billion of unfunded pension liabilities after decades of inadequate contributions. The city’s total retirement obligations for fiscal 2021 are projected to rise to $1.82 billion from $1.68 billion this year.The 2021 budget includes staff position reductions and furloughs of non-union staff with higher incomes. Lightfoot backed off from planned layoffs after negotiations with labor groups. The spending plan also institutes a 3-cent-per-gallon increase in the city’s vehicle fuel tax. The city also approved an ordinance to issue a total of $3.9 billion in general obligation bonds and additional sales tax bonds.“The gas tax is a painfully regressive tax, as it hits those hardest who can least afford it,” the Illinois Fuel and Retail Association, which represents gas stations and convenience stores, said in a statement.Next year’s spending plan includes $65 million for affordable housing and homeless prevention, $36 million for community-based violence prevention and $20 million for mental health, which puts $1 million toward a pilot program that pairs police officers with mental health workers to respond to relevant 911 calls and a model for a responder system that doesn’t involve law enforcement.The budget and related ordinances did not pass unanimously and had several aldermen criticizing the tax hikes and calling for more funding for communities in need.“Rather than taxing the rich, this budget asks already struggling Chicagoans to pay even more in regressive taxes and fines,” according to a emailed statement on behalf of the Democratic Socialists in the city council who voted against the budget. “While we voted no today, we commit to continue working with grassroots organizations over the next twelve months to win a 2022 budget that advances economic and racial justice - a budget that our communities and ourselves can wholeheartedly support.”Several aldermen who supported Lightfoot’s spending proposal said the plan wasn’t perfect but the best path forward amid the economic challenges presented by the pandemic. Pat Dowell, head of the budget committee, said it was far from ideal but included the best of the city’s limited options.“Nothing about this year has been easy,” Dowell said. “The city budget is no exception.”(Updates with mayor’s comments in third paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.