CHICAGO — The Chicago City Council yesterday approved a $6.14 billion 2010 budget, putting aside concerns over Mayor Richard Daley’s drain on reserves established with proceeds of the city’s parking meter lease to erase a $520 million deficit in order to avoid raising taxes and fees.
The budget was approved in a 38 to 12 vote.
The spending plan wipes out the deficit through $118 million from debt restructuring and the use of $250 million from a $400 million long-term reserve account and $100 million from a mid-term reserve. Both accounts were created with funds from the $1.14 billion, 75-year lease of the parking meter system that closed earlier this year.
The long-term account was intended to supplement the city’s $500 million reserve established in 2005 with funds from its first asset lease involving the Skyway toll bridge. The 99-year deal raised $1.8 billion.
The mayor has characterized the use of funds from the long-term parking meter reserve as temporary and said it would be replenished when revenue picks up. The mid-term reserve was intended to supplement the budget through 2012.
Both the debt restructuring and reserve use represent revenue sources that provide just a one-time infusion of cash to cover recurring expenses — a move frowned upon by fiscal analysts and experts and criticized by some City Council members in speeches yesterday.
In voting against a Daley budget for the first time, Alderman Tom Allen said: “You can’t break a contract in 12 months that’s supposed to last for 75 years ...it’s unconscionable, it’s irresponsible, it’s disingenuous, and intellectually dishonest.” Allen called for instead dipping into the city’s flush tax-increment financing funds.
Others said the reserves provided the best alternative.
“What’s the alternative — where is there a source of income that is big enough to fill the whole in this budget?” asked Alderman Edward Burke, chairman of the council’s Finance Committee. “There isn’t any …. so we are in a hang-on mode — we have to hang on until things get better. This is the only reasonable thing we do.”
In hopes of fending off a downgrade, Daley has stressed that the Skyway reserve remains intact, and that total long-term reserve accounts set up with proceeds of the Skyway and meter lease total $630 million, with additional mid-term reserves remaining that bring that figure up to $730 million.
Fitch Ratings recently revised its outlook on Chicago’s AA rating to negative. It attributed the action to the size of the deficit, the effects of the recession on housing and employment levels in the city, and its use of one-time measures to help balance the 2009 budget.
Standard & Poor’s rates Chicago’s GOs AA-minus while Moody’s Investors Service rates them an equivalent Aa3. Both have stable outlooks.
Fitch analyst Melanie Shaker said strong reserve levels remain key to the city’s rating.
“Limited use of currently sizeable long-term reserves helps buy the city some time to implement reform measures, but Fitch expects continued economic weakness to pose additional fiscal challenges,” she said. “The city has taken action to curtail spending, but further progress on narrowing the structural budget gap will be necessary to maintain the rating level.”
In addition to the use of $350 million in reserves and $118 million in savings from debt restructuring, the budget eliminates several hundred vacant positions and a cost-of-living pay hike for non-union employees.
The budget includes plans to issue sewer and water revenue bonds. The city is planning early next year to sell up to $875 million of new-money and refunding GOs to raise budgeted capital funds and generate the restructuring savings.
Although not part of the budget, Chicago is also planning to sell $1.5 billion of new-money and refunding revenue bonds for O’Hare International Airport and up to $500 million of Midway Airport revenue refunding bonds in issues slated for early next year.
The $6.14 billion budget, which includes a $3.2 billion corporate fund, is up 6.4% from the $5.8 billion 2009 budget. Despite talk of an economic recovery, the budget does not anticipate much in the way of an improved revenue picture.
It anticipates a 3.3% drop, or $94 million decline, over 2009 year-end revenue estimates, marking the third such year of negative revenue growth.
The city will spend $409 million of property tax funds towards debt service on its $6.6 billion of general obligation debt.
In its review of the budget, a Chicago-based local government fiscal watchdog group slammed it for being “short-sighted” because of its reliance on one-time revenues like the reserves and debt restructuring, which only serve to contribute to future budget imbalances between spending and revenue.
“Chicago has failed to address the fundamental imbalance in its budget, instead relying on asset sales to prop up the budget and avoid necessary cuts,” said Laurence Msall, president the Civic Federation of Chicago. “Unfortunately, putting off cuts only makes them more painful and expensive later.”
The federation recommended that the city look to further spending cuts to help close the deficit.