CHICAGO — The Chicago City Council overwhelmingly approved Mayor Richard Daley’s $6.15 billion budget for 2011, with only a handful of members attacking it as fiscally irresponsible because of a heavy reliance on reserves and other one-shots to eliminate a $654 million deficit without tax increases.
The one-time revenues being used to prop up the 2011 budget include “borrowing” $120 million from a reserve set up with the city’s $1.15 billion, 75-year lease last year of the parking meter system. Only $76 million will remain from that transaction.
Another $142 million will come from restructuring debt. The city will declare a surplus in more than 20 of its 160 tax-increment finance accounts, freeing up $38.5 million.
Officials expects to collect $98 million from various management initiatives and another $68.2 million from fiscal maneuvers that include modifying interest rate contracts, freeing up escrow funds, and depositing federal interest rate subsidies on some Build America Bonds into the general fund.
Chicago’s penchant for non-recurring revenues to balance recent budgets amid rising labor, pension, debt service, and other ongoing expenses contributed to a round of downgrades over the last three months.
Daley’s budget passed in a 43-to-7 vote that came after more than two hours of debate, during which many who voted in favor of the plan acknowledged it pushes off tough fiscal decisions but offers the best option to avoid tax, fee, and fine increases and deep cuts they believe would harm the city’s economic recovery.
“People are truly hurting and they don’t need higher taxes,” said Budget Committee chairwoman Carrie Austin, who noted the budget is the third consecutive one not to increase the city’s tax levy.
“These are tough times. We’ve struggled with this and it’s the best we can do,” said Finance Committee chairman Edward Burke. Some also noted that the city’s $500 million reserve set up with funds from the $1.8 billion Skyway toll bridge lease in 2005 remains as a financial cushion.
The mayor’s seat and all 50 council positions are up for re-election next year. Daley recently announced he would not seek a record seventh term.
Aldermen who cast a vote against the plan warned it only delays the city’s financial reckoning. “We are running out of one-time sources to plug this hole,” said Alderman Brendan Reilly. “This is bad fiscal policy.”
Alderman Robert Fioretti said he wanted in writing a commitment for repaying the meter lease reserve and multi-year budget planning.
“We cannot continue to rely on non-recurring revenues to balance our budget,” he said. “If this budget passes as presented, only 6.6%” of the parking meter lease payment will remain, “and there is still 73 years left on the lease.”
Daley thanked the council for its support. In unveiling the plan last month, he said: “I don’t believe it’s right to raise taxes with the economy as bad as it is.”
The budget is up $49 million from the 2010 spending plan and it includes a $3.26 billion corporate fund. The budget limits new spending and includes modest cuts with the elimination of 277 positions. Chicago will maintain a hiring freeze and require furlough days for non-union employees that will trim $96.9 million from the deficit in combination with other personnel cost reductions. The budget anticipates tax revenues will climb by $91.3 million.
Daley also is proposing the consolidation of some city departments and the privatization of some city services to generate additional savings. The budget provides relief for some businesses by reducing the number of employees that fall under the city’s head tax based on their salaries. The city plans a $1.9 billion capital budget for 2011, but no details were provided on the GO borrowing levels needed to support it.
Daley will leave the city’s $14.6 billion of unfunded pension liabilities for his successor to address, though he is pressing state lawmakers to support reform legislation that would cut benefits for future police and fire employees. The move would save Chicago money over the long term but it is viewed as a minor step toward improving the status of the city’s four pension funds, now collectively funded at just a 43% ratio.
Standard & Poor’s earlier this month downgraded the city’s rating one notch to A-plus with a stable outlook. Fitch Ratings late last month lowered the city’s rating one notch to AA-minus with a stable outlook after downgrading the credit in August.
Moody’s Investors Service in August downgraded the GOs one level to Aa3 with a stable outlook and recently affirmed the rating at that level.
The 2011 budget relies on a total of $272 million from various types of reserves set up with the Skyway and meter leases, though the use of all but $120 million was previously planned.
By the end of 2011, the city projects that only $576 million of the $2.98 billion generated from asset lease proceeds will remain. “Nearly 80.7% of the proceeds will have been spent in just six years,” the Civic Federation of Chicago warned in its review of the budget.