CHICAGO — Already struggling with a growing shortfall in its 2009 budget, Chicago officials offered a dim view of revenue collections expected in the next year as they warned of a looming $520 million gap in next year’s $6.2 billion budget.
The deficit warning came yesterday from the city’s chief financial officer, Gene Saffold, who released preliminary 2010 budget figures, an annual summer announcement that launches Chicago’s process of fashioning a budget for the next calendar year.
Mayor Richard Daley’s budget will be introduced to the City Council in the fall. The $6.2 billion preliminary plan includes a $3.32 billion corporate fund.
“The challenges we face today are greater than ever, as we work day by day to responsibly manage city government through the worst economic recession in modern times,” Saffold said. “Chicago, like every major city, is experiencing significant budget shortfalls as a direct result of the recession.”
The latest negative news mirrors the monthly revenue updates provided by the city. Tax revenues currently are $147.2 below budgeted levels, putting Chicago on course to close out the year with a $301.7 million revenue shortfall.
Officials have trimmed $70 million through spending cuts, fuel hedging, unpaid personnel furlough days and other personnel-related savings, and by restructuring the Skyway toll bridge escrow. At the same time, public safety costs are up.
To close what is estimated to be a year-end $268.7 million shortfall, the city will dip into a rainy-day fund set up with a portion of the proceeds from its $1.15 billion lease earlier this year of its parking meter system.
Chicago will drain the fund of its remaining $50 million to help whittle down what would otherwise have been a looming $570 million deficit next year to $520 million. Officials attributed the red ink to a drop in revenues of $441.5 million from 2009 budgeted levels and $129.5 million in higher costs.
Income tax revenue is expected to fall by an additional $55 million and although recent reports suggest home prices have leveled off, the city expects a drop of $2 million in its collections from real estate transaction taxes. The latest projection assumes a 78% drop in the real estate transfer tax over its 2006 level of $242 million. Sales taxes are expected to fall by $25 million.
Although tax increases are a last resort, Saffold left all options on the table to address the deficit. “Because of these lower revenue levels, we will continue to control spending and improve the management of government before turning to taxpayers for more, which has always been our last resort,” he said.
The city turned to property owners for a record increase in 2008 and used tax and fee hikes and layoffs to balance the 2009 budget late last year.
Fitch Ratings rates Chicago’s $6 billion of general obligation bonds AA, Moody’s Investors Service rates them Aa3, and Standard & Poor’s rates them AA-minus. The city’s credit is bolstered by a $500 million permanent reserve set up with proceeds of the city’s $1.8 billion lease of the Skyway toll bridge in 2005.
Separately, Daley introduced to the council at its meeting Wednesday an ordinance seeking authorization to refund up to $125 million of sales tax revenue bonds for savings. Rice Financial Products Co. is the senior manager with another three other firms serving as co-managers.