CHICAGO — From double-page copies to reducing paid holidays, there’s no shortage of ideas pouring into Mayor Rahm Emanuel’s office about how to improve Chicago’s fiscal health as his finance team puts the finishing touches on a 2013 budget.
Emanuel will unveil a more than $6 billion spending plan proposal to the City Council on Wednesday next week.
He has held recent community meetings to discuss the city’s budget and pledged to close the gap without raising taxes, fines or fees.
The mayor said improved tax revenues — including those levied on sales of goods, property sales and hotels — would help balance the budget along with additional operational reforms and spending cuts.
The city previously had warned of a $369 million gap but reduced that number to $298 million through tighter spending controls, reforms and improving revenue collections expected this year.
“Our enhanced cost controls and efficiencies have helped us to significantly narrow our anticipated budget gap,” Emanuel said. “While this affirms our reforms are cutting our deficit and bringing positive results for taxpayers, we continue to face difficult challenges.”
Emanuel’s inaugural budget eliminated a $741 million deficit by cutting spending and positions and raising a host of fees and fines.
Though the budget reduced the city’s reliance on non-recurring revenues to achieve balance, it did include one-time savings from debt and swap restructurings.
Chicago faces a dual financial challenge: eliminating next year’s deficit and dealing with a looming pension-funding crisis that poses a more daunting structural burden.
Emanuel is pushing for a state overhaul of city pensions that would reform both funding and benefits, but its fate is uncertain. Chicago is carrying total unfunded liabilities of $17 billion across its four pension funds that are expected to rise to $25 billion by 2017 without action.
Two of the four funds are headed to insolvency in the mid- to late 2020s. The city currently abides by a statutory payment plan that falls short of the actuarially required contribution needed to keep the funds healthy.
Illinois lawmakers repeatedly this year pushed off state action on reforms and its credit has suffered for the delay, so it’s unclear if there is political will to also tackle local government reforms when lawmakers convene early next year.
To address the near-term gap, city inspector general Joe Ferguson last week released a laundry list of 31 options to achieve savings and generate revenues totaling $1.2 billion. The report marked the second year his office has offered budgeting ideas to Emanuel.
Ferguson’s report also lays out the likely arguments in a public discussion for and against each option. In addition to his own ideas culled from audits and program reviews, some options come from the general public and aldermen.
“This report is meant to assist city stakeholders by providing a starting point for discussion regarding a variety of immediate and longer-term expenditure and revenue decisions,” Ferguson said. The report is available at www.chicagoinspectorgeneral.org.
The options range from the mundane — setting printers and copiers to double-print for $200,000 in annual savings — to those that tread into politically rocky terrain: reducing the number of firefighters on fire trucks to save $71 million annually.
The IG report offers other ideas, some of which would need to be included in collective bargaining and others requiring changes in state law.
Ideas include broadening the city’s amusement tax to raise $116 million in new revenue annually and reducing the number of paid city holidays to the 10 holidays recognized federally for possible savings of $5.4 million.
Other ideas include replacing police officers in the department’s forensics unit with civilian employees at a potential savings of $3.1 million and replacing the sworn officers in administrative sections with civilians, to save approximately $3.6 million.
Recovering the costs for responding to false residential burglary alarms by assessing a fee could raise $1.9 million annually, the IG report said; replacing firefighters in the Fire Prevention Bureau with civilian employees to save $1.5 million; and reducing janitorial contract services city facilities would save $5 million. Eliminating the city’s subsidy to World Business Chicago would save $1 million annually.
The Civic Federation of Chicago, a local government fiscal watchdog group, last week updated its “Recommendations for a Financially Sustainable City of Chicago” report that spells out 40 recommendations for the city to achieve long-term fiscal health.
The suggestions span all areas of city government including administrative, operations, budgeting, tax-increment financing policies, personnel and pensions, and it includes an update on the status of city action on the recommendations.
The federation praised the city for stemming the rising tide of red ink through cost-saving initiatives such as improvements in the procurement process, streamlining the business license process, instituting managed competition with the private sector in areas like recycling, cutting personnel, and other administrative reforms.
The city’s adoption of some of the federation’s recommendations is expected to save $57.6 million this year.
“Despite these achievements, the city still faces enormous financial challenges with its long-term liabilities,” the federation writes. “The pending fiscal crisis is an immediate concern for all taxpayers and can only be resolved through strong leadership, cooperation with relevant unions and engagement with the Illinois General Assembly.”
Though praising Emanuel for unveiling what it called a comprehensive and balanced reform package this spring, the federation warns that action is needed to avert a fiscal reckoning.
Chicago’s Municipal and Laborers’ pension funds are headed toward insolvency in the next two decades while the city faces an increase to $1.2 billion in 2015 from $476 million this year in its contributions for police and firefighters under a state mandate.
“The pension liabilities have grown so large and the contributions needed to rescue the funds are so substantial that the city will have great difficulty funding the current pension promises it has made to its employees,” the federation’s report reads. “Further delay in implementing reforms will only increase the severity of the actions that must be taken.”
In a push to draw public and council attention to the subject, the City Council’s Workforce Development and Audit Committee, chaired by Emanuel’s floor leader, Alderman Patrick O’Connor, held a day-long hearing on the issue Monday. The council was told an infusion of $1.5 billion would be needed annually in the coming years to fully fund the city’s system along with those of several of its sister agencies like the Chicago Public Schools. Without reforms, property taxes could triple.
Aside from the looming pension problem, ongoing structural changes in city spending are also still needed. The city’s annual financial analysis warns that a $466 million deficit looms in 2014 with a $580 million gap in 2015 based on a mid-level financial forecast.
“Even under optimistic projections, the city will continue to experience a sizable annual budget shortfall for several years,” the report warns. “Many of the challenges underlying the structural deficit remain.”
Ahead of its last general obligation bond sale this spring, Moody’s Investors Service revised its outlook to negative on Chicago’s $8 billion of Aa3-rated GO debt, primarily because of its unfunded liabilities and the looming pension payment hike.
Fitch Ratings affirmed the city’s AA-minus rating and stable outlook. Standard & Poor’s affirmed its A-plus rating and stable outlook.
The credit benefits from solid, remaining reserves of $634 million, primarily from the city’s $1.8 billion Skyway toll bridge lease in 2005. Former Mayor Richard Daley used much of the proceeds from a separate lease deal in 2009 for the city’s parking meters to balance his last few budgets.
Rising debt service also contributes to Chicago’s near-term fiscal pressures. Its GO and revenue-backed debt load hit a high of $20.2 billion in 2012. Debt has not only funded capital projects, but also retroactive personnel raises and settlements and judgments.
Total debt service will rise to $1.55 billion next year from $1.3 billion in 2012.