CHICAGO - Chicago Mayor Rahm Emanuel's fiscal agenda for a second term gambles on elusive state action to avoid making city taxpayers cover a $550 million spike in public safety pension contributions next year.
Emanuel's campaign also used the incumbent's "fiscal agenda" to boast of strides over the last four years and attack challenger Jesus "Chuy" Garcia's budget framework for its lack of detail. They face off in an April 7 runoff.
Emanuel's plan offered more detail than Garcia on pension reforms and he also laid the groundwork for what most investors and analysts believe is an inevitable property tax hike.
Garcia has steered clear of discussing the potential impact on the property tax levy. But Emanuel too didn't offer a specific fix for the city's fiscal ills should it fail to win state help on pensions.
"Unless we are able to collaboratively pass legislation to modify our pension structure and put in place a smart funding formula, property tax bills will explode next year," the agenda warns. "Rahm's framework will stop that property tax increase and put our city and our pension funds on a solvent and strong financial path."
The city's $20 billion tab of unfunded pension obligation weighs heavily on its finances, driving its credit ratings down. Moody's Investors Service in February, in the latest in a series of downgrades, dropped Chicago to Baa2, only two notches above a speculative grade. It retains a negative outlook.
Emanuel won state passage last year of reforms to the city's municipal fund and laborers' fund that stabilizes them through cuts and higher contributions. While the city negotiated terms to win the support of most unions, several opposed it and are behind a pending legal challenge.
The fiscal reckoning in 2016 comes from a prior state mandate to move from a statutory contribution funding formula for local government public safety funds to an actuarially based formula.
Emanuel banked throughout his first term on winning from state lawmakers a combination of benefit reforms and permission to phase in the actuarial formula.
Those legislative proposals have languished and union negotiations are on hold pending the Illinois Supreme Court's review of the constitutionality of reforms that cut benefits for the state's public employees.
Emanuel said he would seek reforms limiting what's now a compounded annual cost-of-living adjustment to a simple interest calculation tied to inflation with series of one-year freezes and city and employee contribution increases.
"After decades of politicians kicking the can down the road and underfunding public employee pensions, we cannot ask taxpayers to bear the burden of a massive balloon payment all in one year. This shock would decimate the city's budget and the Chicago economy," the agenda says.
Emanuel also is pressing for reforms to the school system's pensions. The Chicago Public Schools are facing a $700 million pension contribution in its next budget, which must tackle a $1 billion deficit. Moody's recently socked the district with a two-notch downgrade to the lowest investment grade level of Baa3 and assigned a negative outlook.
Emanuel said reforms to the public safety funds and teachers system would lower a combined $1 billion increase due next year to a "more manageable $300 million in additional payments on top of our current obligations.'
Emanuel sought to highlight budgetary accomplishments. He's cut the city's structural deficit in half through management, policy, and contract initiatives and by curtailing the heavy use of non-recurring revenues. He's also making small deposits into the city's reserves. Emanuel also balanced the city's budgets without hikes in the city's sales, gasoline, or property tax levy.
Emanuel has continued Daley's practice of pushing off some debt service for relief and borrowing to cover short-term expenses, although at lower levels.
While Emanuel offered no specific revenue plan to cover the city's estimated $350 million structural deficit or to fund the $550 million pension payment spike absent state action, he attacked an even greater lack of detail in his rival's fiscal proposals released Friday. Garcia would say only that he planned to appoint a special committee if he wins the runoff to assess the city's options on reforms and revenue.
"Make no mistake, if we follow Garcia's path, it will inevitably lead to huge new property tax increases or drastic cuts in services," Emanuel's plan warns.
Emanuel's plan says only his administration would continue to look to reforms and savings in the delivery of city services, control healthcare costs, and enact further tax-increment financing reforms. He would press for reforms on school pension funding formulas and seek the closure of state tax loopholes pushing for a sales tax extension to some professional services. Emanuel also intends to resurrect efforts to win a casino for Chicago.
