CHICAGO — A Chicago-based fiscal watchdog group has endorsed Cook County’s proposed $2.9 billion all-funds 2013 spending plan, but warns of uncertainty surrounding key revenue sources as well as a growing structural deficit and pension liability.
The Civic Federation of Chicago Friday released an 87-page analysis of the budget proposal, unveiled by county President Toni Preckwinkle last week.
“With this budget, the Preckwinkle administration is continuing its disciplined approach to significant financial challenges,” Laurence Msall, president of the Civic Federation, said in a statement released along with the report. “These spending cuts, together with initiatives like performance management and managed competition, are making Cook County government a more efficient and accountable steward of public resources.”
The budget closes a $267 million deficit with cuts and several new revenues, including taxes on cigarettes, gambling, guns, and bullets. The deficit was $350 million, but a 2012 debt restructuring that pushed off $85 million of debt payments due in 2013 shrank it to $267 million.
The largest new revenue source, estimated at $100 million, comes from an expanded Medicaid program that would allow the county to begin collecting federal payments a year ahead of the new health care law.
The federation pointed out that the federal government has not yet approved the expansion — though approval is expected — and that the county might find it difficult to achieve its enrollment goal of 115,000 new patients.
The proposed taxes on bullets and guns as well as a so-called use tax on businesses will likely be challenged in court, and the $1-per-pack cigarette tax might not raise the expected $25 million in annual revenue.
It’s Preckwinkle’s third spending plan since she took office in 2010 after defeating incumbent Todd Stroger. Preckwinkle campaigned on a promise to repeal an unpopular 1% sales tax increase and restore fiscal responsibility to a government seen by many as corrupt and inefficient.
The federation, like many local media editorials, praised the budget for its elimination of the sales tax, its personnel cuts, and its focus on improving the county’s massive public health system, which accounts for a third of its budget.
But, the federation warned, Preckwinkle’s plan fails to fully cure a chronic structural deficit or outline specific pension reforms to halt an “alarming” drop in the funded status of the county’s pension fund, which was at 57.5% in fiscal 2011, down from $74.5% in 2002. Preckwinkle has repeatedly said she is waiting for the General Assembly to pass pension reform before tackling the county’s system.
“The county’s pension fund has not yet reached the tipping point of financial peril but it will be soon without action,” Msall said, adding that it cannot wait for Springfield to take action.
The structural deficit is due in part to growing debt-service payments, which will spike to $299 million in fiscal 2017 from $187 million in fiscal 2013. The increase is due to borrowing in 2009 and 2010 and the 2012 debt restructuring.
The county’s growing bond debt could also pose a challenge, the federation said. Its general obligation debt increased 24.5%, or $760 million, from 2007 to 2011, the federation said. “Increases in this indicator should be monitored as a potential sign of growing financial risk,” the report said. “The large increase bears watching in future years.”
The proposed budget totals $2.9 billion with $2.29 million of that for the general fund. That’s a 0.2% decrease from the current budget. The $372 million capital budget does not include any new projects, and proposes tapping existing capital bond proceeds.
Moody’s Investors Service rates Cook Aa3. Fitch Ratings rates it AA-minus. Moody’s and Fitch both downgraded the county last year due in part to revenue declines, the sales tax cut, and mounting pension and OPEB liabilities.
Standard & Poor’s rates it AA with a stable outlook.
