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Emanuel projects $426 million shortfall — even with several rosy assumptions

Mayor Rahm Emanuel on Friday released a financial analysis that projects a $426 million budget shortfall in 2016, but only if three rosy and risky assumptions turn out to be correct.

The shortfall does not include a $328 million payment to police and fire pension funds that Emanuel conveniently left out of his pre-election budget. Add that in and the revenue gap grows to $754 million even with the risks the mayor is taking.

One week after a judge overturned his plan to save the Municipal Employees and Laborers pension funds, Emanuel is counting on the Illinois Supreme Court to reverse that decision.

Forget about the fact that the high court has already overturned state pension reforms. Never mind that Circuit Court Judge Rita Novak cited the “crystal-clear direction” provided by the Illinois Supreme Court’s reading of the Illinois Constitution: Membership in a government employee pension system “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

The mayor’s forecast also assumes that Gov. Bruce Rauner will sign legislation giving Chicago 15 more years to ramp up to 90 percent funding levels for the police and fire pension funds.

Chicago taxpayers would still be on the hook for $619 million in payments to the two funds next year, more than double the current payment. But that’s $219 million less than the city would have been forced to pay.

The third assumption is that Emanuel will be allowed to complete a three-year phase-out of the city’s 55 percent subsidy for retiree health care — and that a lawsuit that seeks to reinstate the $108.7 million-a-year subsidy falls flat.

If Emanuel is proven wrong by the Supreme Court, it will temporarily improve Chicago’s shaky finances — to the tune of $90 million in 2015 and $40 million in 2016.

But in the long run, Chicago taxpayers will be forced to pay hundreds of millions of dollars more to save the two pension funds because employees and retirees won’t be meeting them half way.

And if the other two assumptions are reversed, the 2016 budget hole could fast turn into a $1 billion abyss.

Normally, shortfalls in the city’s preliminary budget trigger questions about whether or not there will be a tax increase.

This time, the question is not whether, but which taxes will have to be raised or imposed. The only idea that Budget Director Alex Holt is rejecting is the sales tax already raised by County Board President Toni Preckwinkle.

“The mayor has not been inclined to go to sales tax. It’s not been something he’s been interested in having a discussion about. [But aside from that], we’re taking in any idea that anybody is suggesting and we’re gonna take a look at it,” Holt said Friday.

“We’ve got a big looming issue with pensions. We’ve got to make some payments, particularly for police and fire. And we’ve got to look at every option that’s available . . . We’ve got to look at every savings idea, every reform idea. And we’ve got to look at the revenue ideas as well.”

A post-election property tax increase appears to be a foregone conclusion.

Emanuel has already offered to raise Chicago property taxes by as much as $225 million provided it’s part of an “all-in” bargain where teachers absorb their entire, 9 percent pension payment and the state reimburses CPS for “normal” pension costs.

“There’s a fundamental inequity with respect to schools. We’re the only ones who have to pay for our teachers’ pensions. But we also pay for everybody else’s teachers’ pensions. It really frees up a lot of dollars for every other community in the state to put into their classroom that we’re not able to put into our classroom,” Holt said.

“With respect to the city, we’re combing through every vacancy. We zeroed out everybody’s non-personnel budget again. I want to see where that ends. And then, we’re gonna work through all the ideas the aldermen are bringing forward and all the ideas the public is bringing forward before we know where we’re going to land.”

Last year, Emanuel made several risky assumptions to put off the day of reckoning until after the mayoral election.

Although state law required Chicago to make a $550 million contribution to shore up police and fire pension funds, Emanuel left it out of the financial analysis that replaced the city’s preliminary budget and assumed he would get both revenue and reform before the payment was due.

The mayor further assumed that, even if he didn’t get revenue or reform, he was not required to increase the city’s property tax levy until December 2015.

Now, he’s rolling the dice once again. Only this time, the wolf is literally at the door for a city trying desperately to shed the junk bond rating triggered by the combined, $30 billion pension crisis at the city and public schools.

“The only thing that’s going to shed the junk bond rating is a comprehensive plan that stabilizes the government and funds it with actual revenue, rather than scoop-and-toss [borrowing] and other gimmicks,” said Civic Federation President Laurence Msall.

“The real question is whether the pension funds can be saved with any reasonable tax structure in Chicago. You’re faced with how large of a tax increase could be absorbed by citizens and businesses before it would drive them out of the city. And they’re running out of the ability to borrow at reasonable rates without stabilizing city finances.”

Msall said the “modicum of good news” for Chicago is that the economy is rebounding, revenues are rising and spending is being kept in check.

The city spent $30.3 million on snow removal in 2015 — far exceeding its budget for the entire calendar year even before the sometimes snowy months of  November and December. But that was covered by a surplus in the motor fuel tax fund.

“If you exclude pensions and debt service, their forecasts for revenue and expenditures are holding. They’re not getting worse,” Msall said.

“However, when you take into account the uncertainty in Springfield and the courts regarding, a very large deficit looms . . . that will require significant property tax increases going forward …The public should be demanding a comprehensive plan for how we’re gonna deal with the irrefutable need to stabilize these pension funds, pay existing debt and maintain essential operations.”

Emanuel has moved his 2016 budget unveiling up a month—to September—and urged aldermen to come forward with their cost-cutting and revenue-raising ideas.

Aldermen have obliged, by suggesting everything from a city income tax, a gas tax and authorizing video poker in Chicago to a corporate income tax, a tax on smokeless tobacco and sugary drinks, a garbage collection fee and a $1-a-ride surcharge on rides provided by taxicabs and ride-hailing companies.

A few aldermen have even gone so far as to entertain the controversial idea of legalizing and taxing the recreational use of marijuana. The Progressive Caucus served up a smorgasbord of new revenue ideas targeting wealthy Chicagoans and downtown businesses earlier this week.

Emanuel once again refused earlier this week to take a stand on any of those ideas amid concern that passing judgment would stifle the debate. He wants aldermen to keep the ideas coming.

In fact, he’s now planning a series of town hall meetings to hear revenue and cost-cutting ideas from everyday Chicagoans.