CHICAGO — A prominent fiscal watchdog group in Chicago is praising Cook County, Ill.’s proposed $2.9 billion 2012 budget for closing a $315 million deficit but warns that a chronic structural gap will continue to mount without more action.

County Board President Toni Preckwinkle, now in her second year of a first term, presented the $2.9 billion all-funds budget last week.

Commissioners began budget hearings two days later and are expected to sign off on a final plan by the end of November. That would mark the first time in years that Cook has completed a budget in time for the start of its fiscal year Dec. 1., and the Civic Federation applauded the move, saying chronically late budgets were one of the more egregious accountability issues facing the county.

The $2.2 billion general fund budget marks a 4.6% drop from the current year budget and features  $219 million of cuts and a series of new fees and tax hikes.

The federation’s 136-page analysis lauds Preckwinkle’s decision to fulfill her promised gradual repeal of an unpopular sales tax increase as well as coming up with $219 million of cuts. But it warns that more structural reforms are needed to bring down the rising imbalance between revenues and liabilities.

“Despite the many positive aspects of this budget, Cook County government will continue to face significant challenges that will require cooperation by the president, elected officials and commissioners,” the report said, adding that the structural budget hole is chief among the challenges. “Addressing the structural deficit will require additional operational reforms. To drive this process in a rational and transparent way, the county needs to develop a long-range financial plan.”

The federation warns that figures show that, left alone, Cook’s structural deficit will grow to $667 million in fiscal 2016 from a projected $210 million in 2013. Even the planned layoffs of 1,000 employees as proposed in the current budget will mean a decrease of only 1.4%, or $24.5 million, in the 2012 general fund, the watchdog group noted. The structural deficit is driven in part by the gradual repeal of the 1% sales tax hike passed in 2008 under ex-President Todd Stroger.

Preckwinkle vowed to repeal the tax hike during her campaign, and the 2012 spending plan rolls it back by 0.25%. The current budget repealed it by 0.50% and the final rollback is expected in 2013.

“Board President Preckwinkle is to be commended for exercising leadership on this key financial management issue,” the federation said in its report.

However, the 0.25% rollback will mean the loss of $51 million of revenue next year.

Over the longer term, the county’s liabilities will continue to grow and challenge efforts to bring the government into balance, the group said.

Among the longer-term liabilities are debt-service payments that are scheduled to rise to $294 million in fiscal 2014 from $191 million in 2010. Pension costs will spike, as Cook’s pension fund ratio has fallen to 60.7% from 88.9% in 2001.

Overall, total long-term liabilities, including other post-employment benefits — OPEBs — and pensions, rose by nearly 14% to $6 billion between fiscal 2009 and 2010. “The steady increases in long-term liabilities are a cause for concern,” the federation said.

The report notes that the county’s general fund reserves have fallen to 2.3% in fiscal 2010 from 19.7% in 2006. More recent figures are not available because Cook’s accounting system has changed. The county does not currently have a rainy-day fund target.

Preckwinkle touted the budget’s lack of reliance on one-shot measures to bring down the deficit, saying that one-time measures make up less than 1% of the budget. The figure, however, does not include saving achieved in a recent county debt refinancing.

The transaction totaled $507 million and included roughly $380 million of refunding bonds. The refinancing allowed the county to push off $92 million of debt payments scheduled for 2012 as well as $85 million due in the current fiscal year and $85 million due in 2013. The refinancing represents a nonrecurring savings that won’t be available in future years.

Two of the big three rating agencies have downgraded Cook, citing falling revenue tied to the sales tax decrease and rising pensions costs. Moody’s Investors Service in June dropped it to Aa3 from Aa2. Fitch Ratings in September cut it to AA-minus from AA with a negative outlook. Standard & Poor’s affirmed its AA rating with a stable outlook.

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