CHICAGO - The Chicago City Council overwhelmingly approved Mayor Richard Daley's $6 billion, 2009 budget that closes a $469 million deficit through a mix of tax increases, job cuts, debt restructuring, and the use of proceeds from two asset leases.
It leaves the city's $500 million reserve intact along with the current property tax levy.
Council members voted 49 to 1 in favor of the budget after two hours, during which some raised concerns over the impact of fee increases and whether their wards would be shortchanged on city services because of the cuts. In the end, most agreed that although austere, the budget was sound, based on foundering revenue collections and warnings that the economy will worsen.
"This budget is a responsible budget ... it protects our taxpayers and working families and moves the city forward," said Carrie Austin, chairwoman of the council's budget committee. "It's not perfect ... but I believe it's a responsible approach to spending."
Several council members pressed the importance of leaving the property tax levy alone and the reserve intact.
"One of the major costs of any government is the cost of interest on the money you borrow," said longtime council member Bernard Stone, noting that the establishment of the reserve with proceeds of the Chicago Skyway toll bridge lease in 2005 helped win a round of upgrades. "This is a very important issue."
Daley has portrayed the 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. City officials have warned they anticipate a roughly $200 million annual structural deficit through 2012.
To close the $469 million gap in both the 2008 and 2009 budgets, the city will cut about 1,300 open positions, and lay off another 770. The city is also imposing a series of tax and fee increases in areas such as parking and amusement.
The budget relies on about $263 million of revenues from what are considered one-time revenue sources, although some will be available over the next few years. Officials expect to save about $60 million from the restructuring of some existing debt, beginning with a $300 million general obligation refunding next month. The city will use $40 million from the $100 million of unrestricted proceeds it expects to receive from the proposed $2.52 billion lease of Midway Airport that is awaiting federal approval.
Chicago expects to save about $13 million in debt service in 2009 as it will forgo its annual new-money general obligation bond issues of about $300 million to finance infrastructure projects, instead using the Midway proceeds. Chicago plans to use $150 million from its proposed long-term lease of its parking meter system. The city has not yet announced bidding results.
Two ratings analysts who follow the city's credit said the debt restructuring raises concerns and they expect to learn more details on those plans in conversations with the city's finance team later this week. They also view the use of lease proceeds as a concern, but overall praised the city's use of cuts rather than a property tax increase or use of reserves.
"This is an austerity year and we are heartened they won't tap the reserve," said Standard & Poor's analyst John Kenward. "The use of one-time shots is something you see a lot of communities under stress doing to avoid raising the major revenues, but as long as it's a bridge to better times and a relatively modest portion of the budget," it would not hurt the credit.
"The cuts will help shore up the budget and future budgets. The use of proceeds from the sale of assets is not the strongest practice but it seems incremental," said Moody's Investors Service analyst Ted Damutz.
The approved budget anticipates starting out the year with just a $1.5 million balance, a level that along with the city's $9 billion in unfunded pension liabilities raises concerns over the city's long-term fiscal health, a local fiscal watchdog group has warned. Fitch Ratings rates Chicago's $6 billion of GOs AA, while Moody's Investors Service rates it Aa3, and Standard & Poor's rates it AA-minus.
