CHICAGO — Drawing deeply from the public finance industry well, Chicago Mayor-elect Rahm Emanuel on Wednesday announced a finance team led by advisory professional Lois Scott and supported by a project finance lawyer and public sector banker, both with previous government experience.

The team will inherit a balance sheet that carries a deficit in the range of $500 million going into the next budget cycle and a structural deficit of up to $1 billion when a looming $500 million state-mandated increase in pension fund payments is counted.

“Chicago’s budget deficit is a threat to its economic future. The challenges we face are daunting,” Emanuel said at a news conference. “It is time to chart a new course that puts the city on a sustainable path.” The new mayor will be sworn in on May 16, replacing Richard Daley, who did not seek re-election to a seventh term.

Emanuel said he chose a financial team that shares his view that change is needed to shore up the city’s fiscal position. He said he expects the next city budget will look dramatically different from the current one, though he offered few details. Chicago releases a preliminary budget in mid-summer.

Emanuel announced the appointment of Scott, president of Chicago-based Scott Balice Strategies LLC, to the role of chief financial officer, confirming news first reported here on Tuesday. Alexandra Holt will fill the job of budget director and Amer Ahmad will serve as comptroller.

Holt worked for 12 years for Chicago as a managing deputy budget director and deputy commissioner in the city’s Environment Department.

She received her law degree in 2007 and currently works at the law firm Baker & McKenzie LLP specializing in real estate transactions, project finance, and state and local government infrastructure privatization.

Ahmad served as former Ohio Treasurer Kevin Boyce’s deputy and chief financial officer. Boyce lost his re-election bid last November. Earlier this year, Ahmad joined Cleveland-based KeyCorp. as a senior vice president and head of its public sector group, which provides investment and banking services for governments, nonprofit and higher education clients.

The group works closely with the bank’s public finance team, which works for its broker-dealer arm Keybanc Capital Markets. Ahmad previously worked as a vice president for William Blair & Co.

Emanuel said he would move management of the city’s revenue department to the comptroller’s office. He also announced Mark Angelson, a former chief executive officer of R.R. Donnelley & Sons, would serve as his deputy mayor for a salary of $1 and as chairman of a new entity being formed called the Mayor’s Economic, Budgetary, and Business Development Council.

Scott, a founding member of the Women in Public Finance and the first woman to serve as CFO since the position was created by Daley, co-founded Scott Balice along with corporate finance specialist Dean Balice in 2003.

She returned to Chicago the previous year after a stint as a White House Fellow in the Clinton administration. Emanuel was a top adviser to Clinton and his campaign finance director. She then worked on Rod Blagojevich’s transition team after he won the Illinois governor’s office.

Previously, Scott worked as an investment banker at L.F. Rothschild & Co., Donaldson, Lufkin & Jenrette Securities Corp., and later at BA Securities Inc., where she re-established that firm’s presence in the region.

Scott’s firm has relationships with most local issuers. In addition to serving as an adviser on city and state issues, her firm works for the Illinois Finance Authority and the Illinois State Toll Highway Authority. Scott has hired at least a dozen staff members over the years and expanded to Anchorage, Columbus, New York City, and New Jersey.  In addition to basic advisory work, the firm also specializes in restructuring, public-private partnerships, and swap services. The firm was tapped by Harrisburg, Pa., Mayor Linda Thompson last year to work on restructuring issues, but the council rejected that move.

The impact Scott’s departure is unclear. Sources said a group of employees will try to buy Scott’s majority interest.

“They are a impressive group of finance professionals with very good reputations,” Laurence Msall, president of the Civic Federation, a local government fiscal watchdog group, said of Emanuel’s appointments. “However, they face enormous fiscal challenges in stabilizing the city’s finances.”

The city is strained by a rising structural deficit, a high debt burden, dwindling reserves, and weak pension funds. Emanuel said he intends to cut $75 million from the current budget and during the campaign he outlined proposals he believes can save the city $500 million.

Daley last week said some tax streams have improved, allowing the city to put $50 million back into a reserve created with proceeds of the $1.15 billion 2009 lease of the parking meter system. Daley has drained much of the meter reserve to help balance the last several budgets, although the city retains more than $500 million in a permanent reserve. 

Chicago’s unfunded pension liabilities in its four funds total $14.6 billion. The city had intended to use a portion of its proposed $2.5 billion lease of Midway Airport to improve the funded ratios, but that deal fell apart due to the 2008 credit crisis and Emanuel has showed little interest in resurrecting it.

Last fall, Fitch Ratings downgraded Chicago’s $6.8 billion of general obligation bonds one notch to AA-minus and Standard & Poor’s dropped the credit to A-plus. Moody’s Investors Service in August lowered the GOs to Aa3. All three agencies have stable outlooks.

The downgrades, coupled with the negative fiscal headlines and the state’s financial woes, have taken a toll on city interest rates as it had to pay a premium on bonds backed by water and sewer fees with solid debt-service coverage.

Chicago’s current CFO is former public finance banker Gene Saffold, who sources said is expected to take some time off before looking for a new endeavor.

The city’s current budget director, Eugene Munin, has held the position since 2009.  Steve Lux has served as comptroller since 2006.

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