CHICAGO — Chicago Mayor Richard Daley unveiled a $6.14 billion 2010 budget yesterday that relies on spending cuts and one-time maneuvers like debt restructuring and a raid on reserves to wipe out a $520 million deficit without any new or increased taxes, fees, or fines.
The mayor’s spending plan does leave intact the $500 million permanent reserve he established with proceeds of the $1.8 billion, 99-year lease of the Skyway toll bridge in 2005 that drove a round of credit upgrades.
Daley acknowledged critics’ concerns over his plan to drain $250 million of the $400 million long-term parking meter reserve set up with proceeds of the $1.14 billion, 75-year lease that closed earlier this year and another $100 million from mid-term reserves from the parking meter lease that was to help offset funding needs in 2012. Both represent revenue sources that provide just a one-time infusion of cash to cover recurring expenses — a move frowned upon by fiscal analysts and experts.
“I had hoped to avoid this and I understand that some may have problems with it, but as mayor, I have the responsibility to provide the services that people need, especially now during these tough times when they demand more from government and not less,” Daley said in his budget address. “Now is not the time to burden people with higher taxes or the elimination of essential city services, so I believe it is responsible to borrow from the reserves.”
He characterized the transfer of funds from the $400 million reserve as a temporary borrowing and said the money would be replenished when city revenue collections recover.
Chicago set up the long-term reserve to boost its balance sheet and to generate earnings that would replace the revenue it had previously collected from the parking meters before the lease deal. The city will siphon another $20 million from the reserve account to offset a decline in anticipated earnings, leaving the fund at $130 million.
In hopes of fending off a downgrade, Daley stressed that the Skyway reserve remains intact, and that total long-term reserve accounts set up with proceeds of the Skyway and meter lease total $630 million, with additional mid-term reserves remaining that bring that figure up to $730 million.
In addition to the use of $350 million in reserves, the budget relies on about $118 million in savings from “strategic debt financing and restructuring,” according to budget documents. The city took similar steps to help close a shortfall this year. No additional details were immediately available on the latest restructuring plans.
On the personnel side, the elimination of 220 vacant positions and the elimination of a cost-of-living pay hike for non-union employees will generate $24 million in savings and other savings from management initiatives will trim another $20 million off the deficit, while the closure of two tax-increment financing districts will save $8 million.
The $6.14 billion budget, which includes a $3.2 billion corporate fund, is up 6.4% from a $5.8 billion 2009 budget. Despite talk of an economic recovery, the budget does not anticipate much in the way of an improved revenue picture. It anticipates a 3.3% drop, or $94 million decline, over 2009 year-end revenue estimates, marking the third such year of negative revenue growth.
City Council members and the Civic Federation of Chicago, a local government watchdog organization, praised the lack of tax increases, but the federation said it was distressed by the heavy reliance on reserves.
“The Civic Federation is very concerned by the short-term nature of the proposed budget and the sustainability of drawing down reserves that don’t address the underlying structural deficit,” said president Laurence Msall.
The city will spend $409 million of property tax funds towards debt service on its $6.6 billion of general obligation debt. Fitch Ratings recently revised its outlook on Chicago’s AA rating to negative. It attributed the action to the size of the deficit, the effects of the recession on housing and employment levels in the city, and its use of one-time measures to help balance the 2009 budget.
Standard & Poor’s rates Chicago’s GOs AA-minus while Moody’s Investors Service rates them an equivalent Aa3. Both have stable outlooks.
Fitch analyst Melanie Shaker said strong reserve levels remain key to the city’s rating.
“Limited use of currently sizeable long-term reserves helps buy the city some time to implement reform measures, but Fitch expects continued economic weakness to pose additional fiscal challenges,” she said. “The city has taken action to curtail spending, but further progress on narrowing the structural budget gap will be necessary to maintain the rating level.”
Overall borrowing plans in the budget were not immediately available, but the city expects to issue sewer and water revenue bonds and has nearly $3 billion in financings coming up later this year and early next year. They include the sale of up to $875 million of new-money and refunding GOs, up to $1.5 billion of new-money and refunding O’Hare International Airport revenue bonds, and up to $500 million of Midway Airport revenue refunding bonds.
