CHICAGO - Chicago Mayor Richard Daley unveiled a nearly $6 billion budget for 2009 that closes a looming $469 million deficit by dipping into the proceeds of two asset-lease transactions and by using a mix of tax increases, debt restructuring, and steep job cuts.

Daley portrayed the budget as his most difficult in his nearly two decades in office. Chicago is grappling with steadily increasing personnel and other operational costs amid a dramatic slowdown in revenue collections.

"This is not a good-news budget .... We are living in one of the most challenging times in our nation's history," Daley said in his budget address yesterday before the City Council. "City revenues, especially the economically sensitive ones, have been impacted."

While Daley sought a hefty $86 million property tax increase last year, the proposed 2009 budget does not include another nor does it dip into the $500 million budget reserve established in 2005 with proceeds of the city's $1.8 billion lease of the Skyway toll bridge.

"We must do all we can to protect the long-term Skyway reserve fund in order to protect our city's bond ratings, which allows us to borrow at lower interest rates, an important step that protects taxpayers," Daley said. The reserve generates about $25 million in earnings annually for the general fund.

The mayor warned that officials anticipate a roughly $200 million annual structural deficit through 2012 as the economy is expected to slow even further into the new year. Economic performance over the next few years remains clouded. For example, in 2010, employee wages and benefits will rise $134 million, debt service $63 million, and non-personnel costs $35 million, while revenue growth is projected to bring in only $38 million more than in 2009.

That warning set the stage for Daley's decision to cut personnel.

"Because we foresee a worsening economy and budget deficits ahead, we must confront our budget challenges head on this year or we risk making the problem worse," he said.

The city will lay off about 929 employees, anticipating an annual savings of about $41 million, and eliminate another 1,346 open positions to save $29 million. The city also will require employees to take three unpaid furlough days this year and next - on the day after Thanksgiving, on Christmas Eve, and on New Year's Eve - for $13.2 million in savings.

Other personnel-related actions, such as a slowdown in the filling of police positions and voluntary severance, will bring the overall personnel-related savings up to $112.2 million. Various spending cuts across all departments will save $24 million.

The budget release followed the release of preliminary budget numbers over the summer that revealed a combined $420 million deficit in the 2008 and 2009 budgets. That figure grew to $469 million as revenues continued to slow.

While the proposed budget does rely on layoffs and other tax and fee increases that will help better bring the city's long-term revenues in line with ongoing spending, it is balanced on a series of significant one-time measures totaling $263 million that won't be available over the long-term.

Officials expect to save about $60 million from the restructuring of some existing debt, including $41 million this year and another $19 million next year. The savings likely will come from extending some maturities, although no additional details were provided by finance officials.

The city will use $40 million - $20 million now and another $20 million next year - from the $100 million of unrestricted proceeds it expects to receive from the proposed $2.52 billion lease of Midway Airport. The city would tap the $100 million in $20 million increments over five years.

Chicago will use $1.2 billion to pay off Midway's debt and another $300 million for police and fire services and pending projects, leaving another $1 billion to spend. Under state legislation, about $900 million must go to fund infrastructure or to help bring down the city's $9 billion unfunded pension liabilities.

The council last week approved the lease of Midway to a consortium known as MIDCo but federal approval is still needed. Officials hope to close on the lease before mid-January. The city has not announced how it would divvy up the $900 million between infrastructure and pensions.

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 between $200 million and $400 million to finance various infrastructure projects, instead using the Midway proceeds.

In the largest one-time infusion in the budget, Chicago plans to use $150 million - $100 million this year and $50 million next year - from its proposed long-term lease of its parking meter system. The city is currently accepting bids but has not announced the results, so it remains unclear how much the parking meter lease would generate. The meters generated nearly $19 million in profits last year. The city has also not said how it would replace the current revenues generated by the system.

A local business-funded government watchdog group said the one-time budget balancing steps were worrisome, but overall it had praise for the budget given the struggling economy, especially the "historic" reduction in personnel.

"It's never good to prop up the operating budget with one-time revenues from a lease," said Civic Federation of Chicago head Laurence Msall. "But overall this is a good first step. It is a responsible approach to cut positions because you cannot fix the city's structural budget problems with tax increases."

On the revenue side, the city will raise the parking tax and amusement tax to generate an anticipated extra $19 million. Other measures that will generate about $27 million include increasing the number of red light cameras at intersections, and lowering the unpaid parking ticket threshold for vehicles eligible for the Denver boot, or wheel clamp. Various management initiatives such as holding a taxi cab medallion auction and outsourcing some technology services are projected to generate $17.3 million in savings. Increases in various user fees would raise another $6.5 million.

The all-funds budget totals $5.97 billion, up nearly $49 million from the 2008 budget. The budget anticipates starting out the year with just a $1.5 million balance. The city closed out 2007 with a narrow $4.6 million balance.

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.

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