The city of Chicago’s budget shortfall next year is expected to be the smallest in a decade, but the estimate doesn’t account for billions of dollars owed to the city’s largest pension fund — a debt expected to trigger another significant tax increase.
City financial officials conceded Friday that a new money stream of hundreds of millions of dollars each year will be needed for stepped-up contributions to the retirement fund for municipal workers. That signals additional pain for taxpayers hit this year with the largest property tax increase in modern Chicago history.
A shortfall of $137.6 million is expected in next year’s estimated $3.7 billion corporate budget, which is used to cover day-to-day expenses, according to the city’s Annual Financial Analysis released Friday. That would be the lowest shortfall since 2007, before the Great Recession started taking its toll on city finances.
To deal with declining revenues and ballooning debts back then, Mayor Richard M. Daley resorted to the use of one-time revenues — like spending most of the $1.15 billion paid to the city to lease its parking meter system for 75 years.
Since taking office in 2011, Mayor Rahm Emanuel has significantly reduced the city’s reliance on one-time revenues by cutting costs and enacting a smorgasbord of new taxes, fines and fees. Those efforts, coupled with an improving economy, have significantly reduced the budget shortfall, which topped $630 million his first year in office.
At the same time, Emanuel has worked to find ways to step up contributions to the city’s four pension systems. The city owed those funds tens of billions of dollars when he took office. Last year he pushed through a property tax increase of $543 million that’s being phased in over four years to address shortfalls in the pension systems for police officers and firefighters.
He also has come up with a plan to increase contributions to the city laborers fund, the smallest of the pension systems, that initially would be funded with a $1.40-a-month increase in emergency communications taxes tacked on to landline and cellphone bills.
That still leaves a debt pegged at $18.6 billion owed to the municipal workers fund — far more than the $15.2 billion owed to the other three retirement accounts combined, according to the Annual Financial Analysis.
“We’re going to be announcing very shortly the plan for muni,” city Chief Financial Officer Carole Brown said Friday, referring to the municipal fund. While the city already has set aside some money from existing revenues to pay for that plan, it still will ultimately have to come up with hundreds of millions of additional dollars a year, Brown and Budget Director Alexandra Holt said.
Options being considered to cover those costs include another property tax increase and stepped-up utility taxes in the city, sources have told the Tribune. Property taxes are generally more reliable from year to year, and many people can deduct those taxes on their federal income tax returns, but utility taxes tend to result in less political blowback.
A property tax increase could prove more difficult to get passed because Chicago Public Schools is expected to boost its property taxes by $250 million next year to increase contributions to the teachers pension fund.
To close the $137.6 million operating budget shortfall, the city will first look to ways to cut costs, but additional taxes, fines or fees also could be in store to address that problem, Holt said.
“We’re going to start with the process of trying to balance and squeezing out every dollar we can and looking for those opportunities on the expense side first,” Holt said.
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