CHICAGO - Even after enacting a controversial new sales tax increase, Cook County, Ill., faces a growing structural deficit and will need to drum up additional new revenue in coming years to close the shortfall, chief financial officer Donna Dunnings said yesterday.

In a forceful defense of a recent 1% sales tax hike - pushed by county board President Todd Stroger - Dunnings said the tax hike would allow the county to withstand a rocky national economy and that without it, the county would be on a "ruinous path to fiscal collapse."

But the sales tax increase, which is expected to raise about $450 million annually, is not enough to wipe out the county's growing structural deficit, Dunnings said.

"That structural deficit is living and breathing, and the sales tax in no way takes care of it," she said. "We have to look for other revenue."

To consider new ways to raise money, the Stroger administration has recently established a revenue committee that would consist of county officials and outside groups, such as the Chicagoland Chamber of Commerce, charged with the goal of crafting new ways to generate revenue.

Cook County also recently established an expenditure review committee that would approve all cost-cutting measures. The committees are part of the Stroger administration's efforts to "redefine county finance," Dunnings said.

Dunnings, who is Stroger's cousin, delivered her remarks during an address sponsored by the City Club of Chicago in what was her first major public speech as CFO. The speech came amid increased public scrutiny over Dunnings' recent 12% pay raise, which was approved as county leaders warned of one of the worst deficits in years.

During her talk, Dunnings attacked the administration's critics, accusing them of acting out of "political frustration, not fiscal reality."

"It's much easier to blame patronage than address the real problem," Dunnings said. "These are the types of tactics that George Bush and Karl Rove would admire - they distract from the real problems we face."

The recent debate over whether to raise the county sales tax paralyzed commissioners and nearly shut down government operations. An hour before a midnight budget deadline on Feb. 29, a divided board agreed to a 1% sales tax increase - down from Stroger's original 2% proposal - that was expected to plug an estimated $283 million deficit in 2008 as well as take significant steps toward closing the structural deficit.

The tax hike pushes the county tax up to 1.75% from 0.75%, putting the sales tax levied in Chicago at 10.25%, among the highest in the nation.

When he first proposed his fiscal 2008 $3.2 billion budget last October, Stroger called the county's structural deficit "the elephant in the room," predicting the deficit would hit $288 million in 2008 and $1.5 billion within the next 10 years without additional revenue.

In her address yesterday, Dunnings said the sales tax increase would "protect taxpayers" amid a sagging economy. "It will allow the county to weather ups and downs of the national economy, protect our bond rating and, most importantly, provide services to those who need it the most," she said.

The CFO said the county's massive public health system, with an $850 million 2008 budget, is especially vulnerable to future deficits as health care costs rise and federal compensation is reduced.

The county stands to lose $500 million in federal Medicaid funding over the next five years - more than 15% of the county's annual budget, and 56% of the county's health budget.

The health system's costs are expected to rise $61.6 million by 2009, while other county costs will rise 5% annually, Dunnings said. "Even if the revenue increased at a modest rate, the skyrocketing costs would lead to an untenable position."

Meanwhile, the county's borrowing plans remain in flux. In an earlier interview, Dunnings said the county expects to issue roughly $160 million of sales tax anticipation notes to provide much-needed cash until the additional sales tax revenue flows into the government's coffers - but the county has yet to announce its team for the transaction or when it plans to enter the market.

Officials are also considering refinancing some of Cook's outstanding debt to save money, but as of mid-February was unable to meet its target of 3% net present-value savings. And the county has yet to move forward with a long-planned $500 million general obligation issue that would be used in part to cover payments owed to its pension system.

Dunnings took over as CFO last year, after serving as the county's budget director under longtime county CFO Thomas Glaser.

Cook's $3.2 billion of outstanding GOs are rated in the double-A category by Fitch Ratings, Moody's Investors Service, and Standard & Poor's.

The county's fiscal year begins Dec. 1, but under state law the board does not have to pass a budget until the end of February.


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