CLOSING THE GAP
City faces smallest budget shortfall since 2007, but it does not factor in steep costs of saving pensions
Chicago faces a $ 137.6 million budget shortfall in 2017 that does not factor in the steep cost of — and the tax increases required — to save the largest of four city employee pension funds.
Mayor Rahm Emanuel’s administration released a financial analysis Friday that projects the smallest gap in the city’s operating budget since 2007. For the first time, the shortfall was calculated without “separate consideration of pension funds” because “permanent, recurring sources” of revenue have been identified for three of the four funds.
That’s progress, considering the $ 635 million deficit Emanuel inherited when he took office in 2011 in a budget balanced, in part, with onetime revenues and taxes depressed by the recession.
“It’s been an enormous amount of work on cutting expenses. We’ve got some great revenue growth. We have some new revenue. We really have made tremendous prog- ress towards eliminating the structural deficit,” said Budget Director Alex Holt.
Still, another painful round of tax increases is guaranteed for taxpayers still reeling from the largest property tax increase in Chicago history.
That’s because Emanuel is closing in on a deal to save the Municipal Employees Pension Fund, under the “same framework” he used to save the Laborers pension fund, that will require its own “dedicated revenue source,” the report states.
Possibilities include a “stormwater stress tax” on big- box stores and large businesses; an increase in utility, real estate transaction, sales or gasoline taxes; a fee specifically for pensions tacked on to water bills like the new garbage collection fee or yet another property tax increase.
A property tax increase is the least likely option because it would be the third in a year. Last fall, Emanuel persuaded a reluctant City Council to raise property taxes by $ 588 million for police and fire pensions, and school construction. He has agreed to raise property taxes by $ 250 million more for teacher pensions.
Asked whether a third property tax increase was out of the question, Holt said, “We’re not gonna rule anything in or anything out.”
Last year’s financial analysis projected a $ 426 million budget shortfall, but only if three risky assumptions turned out to be correct, which didn’t happen.
This year’s report forecasts a “worst case” shortfall of $ 780.1 million in 2019 if the economy turns stagnant and revenues fall flat and a best- case scenario of $ 144.1 million that same year assuming continued growth. A $ 32 million increase in the city’s contribution to the police and fire pension funds in 2019 — not covered by the record property tax increase — is included in both scenarios.