CHICAGO — Ahead of the release this week of his proposed $6.2 billion 2010 budget, Chicago Mayor Richard Daley yesterday announced spending reductions and other measures to generate $114 million in savings as he seeks to close a $520 million deficit without raising taxes or fees.
The city will slice 220 vacant positions from the budget for $18 million in savings and cut non-personnel costs in areas like travel, supplies, and equipment by 5% for $20 million in savings.
Another $6 million in savings would come from the elimination of cost of living increases for non-union employees and imposing 24 unpaid furlough days next year on them.
Savings from union concessions are expected to trim another $70 million from the budget.
“Although we are cautiously hopeful that some revenues will begin to recover, we cannot expect revenues to rebound to 2007 levels for a few years,” Daley said. “In the meantime, we must remain creative and we must deliver on our commitment to better manage government and do more with less.”
The cuts follow the mayor’s pledge last week that he would not turn to higher or new taxes or fees to balance the budget.
Chicago two years ago used a large property tax increase and last year a fee increase to deal with faltering revenues and rising personnel costs, but with his approval ratings down and the next election looming in 2011, Daley has ruled out similar measures.
The pledge, along with his vow not to cut deeply into city services, sets the stage for a likely draw on Chicago’s reserves first established in 2005 with proceeds from the city’s first privatization deal involving the Chicago Skyway toll bridge. The city collected $1.8 billion and placed $500 million in what was to be a permanent reserve account.
The city also set up a $400 million reserve with proceeds of its $1.15 billion lease of the parking meter system earlier this year, but Chicago relies on that reserve to generate earnings that replace the annual revenue previously collected by the city from parking meters.
Given the city’s lack of a budget reserve and narrowing year-end general fund balances, having the Skyway reserve fended off a potential downgrade and drove a round of upgrades.
That put Chicago’s general obligation credit rating at AA from Fitch Ratings with a negative outlook, Aa3 with a stable outlook by Moody’s Investors Service, and a stable AA-minus by Standard & Poor’s.
Fitch attributed its recent outlook change to the size of the the city’s operating deficit, ongoing struggle with declining revenue and rising pension costs, and reliance on one-time maneuvers like the use of its mid-term reserves established with asset leases to keep the budget in the black this year.
Fitch warned that any move to drain reserves could trigger negative rating action, a position echoed by analysts from the other agencies.
