CHICAGO – The Chicago City Council unanimously approved Mayor Rahm Emanuel's $8.2 billion 2017 budget, which funds the hiring of hundreds of new police officers and taxes disposable bags to help close a spending gap.
The rare unanimous vote of 48-0 came without debate after comments from Finance Committee Chairman Edward Burke and Budget Committee Vice Chairman Jason Ervin praising the plan and highlighting city strides in addressing its pension ills and structural deficit.
"This is the first year we do not have the pension guillotine hanging over our heads," Ervin said ahead of the vote. "While no plan is perfect, this plan is solid."
Burke highlighted the city's curtailing of poor debt and budgeting practices that added to the structural woes in earlier years.
"We are over some of the most significant hurdles," he said. "Things are indeed looking up."
The budget funds the first wave toward the hiring of 1,000 additional police officers over the next two years. The additions will cost the city $134 million over the next two years but the city expects to trim overtime to $76 million from $116 million last year.
The city headed into budget season with a $138 million gap to close, down from than $600 million when Emanuel took office in 2011.
To erase the red ink, cover $63 million less scoop-and-toss restructuring than originally planned, and pay for $81 million in additional costs, the budget relies on $252 million in additional revenue. It will come from a new tax on plastic bags, special event congestion parking fees, natural revenue growth, and $30 million in savings from various reforms and other initiatives.
New parking meters are being installed to help offset the city's annual payments to its private parking meter system operator to compensate for lost revenue when meters are taken out of service for special events or construction work.
The city's reliance on one-time revenues has fallen over the last few years, but remains in the new budget in the form of $37 million from the prior year's unassigned fund balance, $40.5 million in tax-increment financing surplus revenues, and $37 million being swept from old funds and accounts.
After the vote, Emanuel thanked council members for the recent "tough" votes they've taken on tax hikes that have helped get the "city on the right track."
Last year, the council passed a record $543 million property tax increase and earlier this year signed off a new water/sewer tax. Both are going to bolster the city pension contributions.
Emanuel acknowledged the city has yet to fully clean up its fiscal mess that dragged one of its ratings down to junk level last year and prompted comparisons to the once bankrupt city of Detroit.
"Our goal now is to finish the job……so all the things that we inherited are behind us," he said.
Emanuel argued the passage of new revenue shows the city can muster "the political will" to tackle its challenges and highlighted the decisions of Fitch Ratings and S&P Global Ratings to shift the city's outlook to stable from negative.
The city's lack of "political will" to tackle its pension strains with new revenue had long been cited by analysts and investors as a negative factor.
The city since has won praise for putting in place new funding schemes for its municipal and laborers pension funds to stave off their looming insolvencies. The city faced higher contributions to its police and firefighter funds under a state mandate but won legislative approval to phase in those higher payments.
To ease the burden on taxpayers, the city's pension funding plan phases in a shift to an actuarial based contribution over the next five years, and the path they outline toward improved funding will take decades.
When actuarially based payments kick in for the four funds, the city will face a big jump in contributions, but its officials have not said specifically how those spikes would be covered.
The revised pension funding plans put them on track to reach a 90% funded level in 40 years. The four city pension funds carry net liabilities of $33.8 billion for a collective funded ratio of 23%.
The budget won the Civic Federation of Chicago's endorsement but it came with a list of concerns that includes how the city will keep up with pension funding demands.
"It is crucial that the city demonstrate that it will be able to keep to the funding schedules it has proposed for the four funds while also funding other core city spending priorities," the federation said.
The city's revised plans for its municipal and laborers' funds also still face a state hurdle because their contributions are based on a statutory formula built into state law that must be changed.
The city this week submitted pension legislation which is sponsored by state Rep. Barbara Flynn Currie, D-Chicago. It cleared a House committee and could come up for a vote when state lawmakers return the week after Thanksgiving for the final three days of an annual veto session.
Emanuel, a Democrat, expressed confidence that lawmakers will approve the pension plans "because they will see the hard work the city has done." The legislation is expected to pass but whether Gov. Bruce Rauner will sign it or Democrats can muster support for an override should he veto it are uncertain.
The city's revisions to the public safety funding plan cleared the legislature and members in May overrode a Rauner veto with some House Republican support. But the legislation could get caught up in the ongoing state budget feud.
"We are actually doing our job. I don't want to be dragged in your muck," Emanuel said as he launched into an attack on the state budget gridlock which he said causes "uncertainty" that damages business growth.
The 2017 budget continues efforts to phase out debt restructuring for budget relief. It reduces by $63 million the $125 million of debt pushed off in 2016 and the $225 million the city pushed off in 2015. Mayor Richard Daley's administration began the practice of so-called "scoop and toss" debt restructuring a decade ago to keep debt service costs level and Emanuel continued the practice.
The city will incorporate all of the debt restructuring for budget relief planned through 2018 in a planned $1.3 billion general obligation sale next year.
Fitch rates Chicago BBB-minus, the lowest investment grade level. S&P rates it BBB-plus. Moody's Investors Service rates Chicago at the speculative grade level of Ba1 and assigns a negative outlook. Kroll Bond Rating Agency rates the city's GOs BBB-plus with a negative outlook.
Chicago spreads exceeded 200 basis points over the top-rate Municipal Market Data benchmark on a GO sale earlier this year. They have since narrowed but still represent the highest credit spread for a city with the exception of Detroit.
