Chicago City Council Gives Thumbs Up on $6.5 Billion 2013 Budget

CHICAGO – Chicago Mayor Rahm Emanuel’s $6.5 billion 2013 budget easily won City Council approval Thursday as most members praised the plan for holding the line on taxes and fees while holdouts voiced misgivings over police staffing and revenue projections.

The council voted 46-3 for the budget with one alderman absent, a tally that fell short of the unanimous vote Emanuel received last year on his first city budget. Many had called the vote on that plan a difficult one as it relied on a series of $220 million in tax, fine, and fee increases, layoffs, and police district and health clinic closures to help eliminate a $700 million deficit.

Emanuel’s finance team faced a smaller $300 million shortfall this year as the city began to reap the savings of various management initiatives and more revenues from an improving economy. The city’s reduced reliance on one-shots to balance the 2012 budget also helped chip away at the city’s structural imbalance.

Many council members called the 2013 budget an easy “yes” vote while also acknowledging the specter of the looming pension funding crisis. Absent state approved reforms, city contributions will skyrocket by $700 million in 2015.

“I think you have righted a ship that was headed for the rocks,” Alderman Richard Mell told Emanuel, calling on state lawmakers to “stand up to the plate” and tackle pension reforms.

Emanuel has warned that without state action, the city faces either a 150 % property tax increase or a $1.2 billion cut in services in 2015.  The city has no backup plan should lawmakers fail to act.

Alderman Brenden Reilly said neither option is “acceptable or practical” and reforms are needed to put the pension funds “back on the path to solvency.”

Alderman Robert Fioretti, one of the few ‘no’ votes, complained of police staffing numbers in the budget as the city’s murder rates have drawn national attention. He was also critical of several proposed contracts floated by Emanuel to outsource a city call center and establish digital billboards.

Others who voted against the budget had previously raised concerns over the revenue projections built into the budget especially from initiatives like digital billboards, which is still in the works, and not-yet-installed speed ticket cameras.

In addressing the council after the vote, Emanuel stressed the increased spending in the budget on children, with more funds earmarked for after-school programs, eye exams, and early education. “While other cities and states are cutting back and providing less for children and families, we are able to invest in our strengths and deliver better services without raising taxes, fines, or fees,” he said.

City tax revenues are up by $42 million and an ending balance of $30 million to $40 million is anticipated this year. Though the balance is narrow and leaves little room for error in revenue forecasting, the city benefits from a reserve of $634 million primarily from its 2005 Skyway toll bridge lease.

Former Mayor Richard Daley had relied on reserves from the 2009 parking meter lease to prop up his last few budgets. Emanuel’s 2012 budget earmarked $20 million for the reserve and another $15 million is in the 2013 budget.

The budget, including grant and capital funds, totals $8.3 billion.  The city’s pension payment in 2013 will total $479 million and it will spend $531 million to service its general obligation debt, up from $483 million this year. The city’s tax levy is set at $801 million. The budget does not earmark funding for expected police and firefighters’ raises.

The 2015 pension increase is due to past state reforms aimed at putting the police and firefighter funds on the path towards full funding status. Chicago estimates it will close out 2012 with $19 billion in unfunded liabilities across its four funds.

Emanuel last spring rolled out a series of reforms including freezing cost-of-living increases, but the General Assembly’s approval is needed. Political bickering has derailed state level reforms this year but lawmakers are expected to take up the subject in January. It’s unclear when they might address local government reforms.

The city whittled its deficit down through a mix of recurring and non-recurring revenues, including $40 million in debt refinancing and $10 million from tax-increment financing reforms.

The city has paid a premium to borrow due to Illinois’ liquidity problems and its own fiscal woes. Earlier this year, Moody’s Investors Service revised its outlook to negative on Chicago’s $8 billion of Aa3-rated GO debt, primarily because of its pension crisis. Fitch Ratings affirmed the city’s AA-minus rating and Standard & Poor’s affirmed its A-plus rating. Both assign stable outlooks.

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