Poor revenue collections and increased snow removal costs contributed to an additional $31 million shortfall in Chicago’s 2008 budget, chief financial officer Paul Volpe announced late last month.
The shortfall comes on top of a $469 million combined deficit the city closed in the 2008 budget and 2009 budget approved in November by the City Council.
Officials used a combination of layoffs, tax increases, debt restructuring, and proceeds from two asset leases to eliminate the previous red ink.
Although projected revenue was revised downward last year as the economy worsened, some revenues came in below lowered estimates, including sales and income taxes and the tax on real estate transactions.
At the same time, excessive levels of snowfall in December boosted Chicago’s snow removal budget for the year to $33.6 million from $29.3 million, which had already been increased from $18.5 million, Volpe said.
The city expects to cover the shortfall through savings from locking in lower fuel costs.
It also hopes to save about $11 million on U.S. Treasury bond interest costs by restructuring its escrow accounts set up to retire Chicago Skyway toll bridge bonds. The city leased the Skyway in 2005, using a portion of the $1.8 billion deal to defease $463 million of Skyway revenue-backed bonds.
Volpe warned that Chicago could face further budget problems in 2009. “I don’t expect things to get better” in 2009, the CFO said. “Everybody seems to think it’s going to get worse before it gets better.”
He left open the door for tapping a reserve set up with proceeds of the $1.157 billion lease of Chicago’s parking meter system. The council approved the lease transaction last month. The city set up the $325 million reserve with the intention of using it if necessary to help balance budgets through 2012. Officials already tapped $150 million from the account to help eliminate the $469 million deficit.
Mayor Richard Daley has portrayed the 2009 budget as the most difficult in his nearly two decades in office due to steadily increasing personnel and other operational costs amid a dramatic slowdown in revenue collections. Officials have warned they anticipate a roughly $200 million annual structural deficit through 2012.
Chicago’s $6 billion of GOs are rated AA by Fitch Ratings, Aa3 by Moody’s Investors Service, and AA-minus by Standard & Poor’s.
