Chicago facing $114.2 million budget shortfall in 2018

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Chicago City Hall. | Rich Hein/Sun-Times

Chicago faces a $114.2 million budget shortfall in 2018 that does not factor in the steep cost of police reform, the second year of a police hiring surge or pay raises tied to soon-to-be-negotiated union contracts.

Last year, Chicago faced a $137.6 million shortfall — the city’s smallest in a decade — that did not include the cost of saving the largest of four city employee pension funds.

Six weeks later, Mayor Rahm Emanuel lowered the boom on Chicago taxpayers — by slapping a 29.5 percent tax onto water and sewer bills to shore up the Municipal Employees Pension Fund that’s projected to generate $64 million in 2018.

Now, yet another round of tax increases is virtually guaranteed for taxpayers who have already endured a $1.2 billion avalanche of increases for police, fire, laborers, municipal employees and teacher pensions.

Emanuel has promised to seek City Council approval for a 28 percent increase in the monthly tax tacked onto Chicago telephone bills — both cell phones and land lines — to free up money to shore up the Laborers Pension fund well into the next decade.

The mayor is also considering raising taxes on downtown businesses, high net-worth individuals or both to put the broke Chicago Public Schools on solid financial footing and fill any gap created by Gov. Bruce Rauner’s threatened veto of a school funding bill.

“In Chicago, kids will be in school [on] Day One for a full school year and a full school day because it’s their future and they don’t get a do-over,” Emanuel said Monday.

The mayor walked away from the microphones when asked whether he would consider raising taxes again, but not before he bragged about all of the progress he has made.

“…Every one of the financial bad management practices that I inherited…have either been eliminated or cut significantly and we’re on the doorstep of a major change in that area,” he said.

Last year, Emanuel released a three-year financial analysis that forecast a “worst case” shortfall of $780.1 million in 2019 if the economy turned stagnant and revenues fell flat and a best-case scenario of $144.1 million that same year assuming continued growth.

This year’s version projects a “worst case” shortfall of $812.1 million in 2020 and a best-case scenario of $89.5 million if the economy is rosy.

A $32 million increase in the city’s contribution to the police and fire pension funds in 2019—not covered by a record $543 million property tax hike—is included in both the best-and-worst-case scenarios.

A 2020 increase for police and fire pensions, based on actuarially required contributions, will not be known until 2019. But several factors could impact the hit Chicago taxpayers will have to take.

Union contracts with 90 percent of the city’s 30,000 employees expired on June 30, but the projected shortfall includes no money for retroactive or future pay raises.

That’s even though the city will be under pressure to satisfy the salary demands of rank-and-file police officers to offset the city’s need to change how cops are disciplined.

The report also does not factor in the 441 police officers who must be hired to accommodate the second year of Emanuel’s police hiring surge.

Nor does the analysis include a demand from Police Board President Lori Lightfoot to set aside “tens of millions of dollars” for police reforms demanded by the sweeping civil rights investigation of the Chicago Police Department triggered by the police shooting of Laquan McDonald.

Two-thirds of the now-expired union contracts took effect nearly 10 years ago, when former Mayor Richard M. Daley sought to guarantee labor peace through what he hoped would be a 2016 Summer Olympic Games in Chicago.

Inspector General Joe Ferguson has urged Emanuel to seize a “generational moment” for Chicago to tilt the playing field in favor of taxpayers by cutting costs and improving city services.

But if the mayor follows Ferguson’s cost-cutting blueprint, union leaders are certain to demand even higher pay raises and more lucrative benefits to compensate for those work-rule changes.

Civic Federation President Laurence Msall called the shortfall “significant, but manageable.” But he expressed concern about the promised police hiring and about the level of borrowing Emanuel anticipates after incurring “an extraordinary amount” of debt last year.

“We would hope the city would find ways to pay for it through its operating budget to avoid unnecessarily increasing costs,” he said.

The financial analysis anticipates that “non-tax” revenue generated by fines will drop by four percent or $19 million next year, thanks to changes made to Chicago’s widely-despised red-light camera program.

Emanuel eliminated six red-light cameras and increased the “grace period” before fines are triggered.

Amusement taxes are expected to beat the city’s 2017 projections by $25.5 million and rise by $1.8 million next year to a year-end total of $170.5 million.

The projected shortfall is 17 percent lower than last year’s gap and 82 percent less than the one Emanuel inherited. Emanuel credits “sustainable and balanced revenue growth” and cost-cutting reforms implemented in the last six budgets.

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