City could see $1 billion budget deficit in 2015
by CYRYL JAKUBOWSKI
Two Northwest Side alderman said they do not expect the city to increase property taxes or sales taxes next year to close a projected $338 million budget gap, but they expressed concern about facing a nearly $1 billion deficit in 2015 if the Illinois General Assembly fails to pass pension reform.
The city expects to bring in $3.22 billion in revenue by the end of the year, which includes $177 million that was carried over from previous years, according to the city’s annual budget analysis. Corporate fund revenues are expected to increase by $56 million, or 1.8 percent, over last year.
The city is expected to bring in $3.02 billion and spend $3.36 billion in 2014, according to the analysis.
Alderman Nicholas Sposato (36th) said that the projected budget gap for next year is smaller than in previous years. Sposato said that the city will face a crisis if legislators in Springfield fail to reform the pension system.
However, Sposato said that it is too early in the budget process to discuss possible solutions. "This is stuff that we can’t remotely figure out," he said. "The mayor has people who will come in and try to deal with this."
Mayor Rahm Emanuel balanced the budget last year through better-than-projected economic growth and revenue-making initiatives such as leasing electronic billboards.
"We had a budget briefing and we will manage next year, but the $1 billion deficit in 2015, it all hangs on the pension issue and we have to come up with a solution to avert the crisis." Alderman Timothy Cullerton (38th) said.
According to the analysis, pension obligations will hit a turning point in 2015, when the city will be required by law to contribute about $1.07 billion to the pension fund, a sharp increase from the required contribution of $479 million in 2013.
Historically, the city’s property tax levy has been the primary revenue source for pension payments and debt obligations, according to the analysis. The city’s current levy is $801.3 million.
"These expenses will far exceed the revenue sources currently used to fund them and "they can no longer be segregated from the city’s operating budget," the analysis said.
Cullerton said that the city has assets to cover about 30 percent of the required payments to police and fire pensions. The onset of the recession in 2007 and 2008 and the crash of the real estate market reduced the pension funds from 68 percent funded to about 38 percent funded, according to the city.
"Nobody ever foresaw such a big shortfall," Cullerton said. "As our workers have cashed into their pensions for 30 years, those revenues were decreasing to pay for other things."
Cullerton said that he opposes property tax increases and that he will not support a city budget that includes them.
"If we were a private company we would never be able to forego our pension payments," Cullerton said. "We would have normal contributions.
"We as a city increase taxes on a regular basis. It would have been easier to increase taxes by a little bit over a long period of time in order to deal with that debt."
Cullerton said that as a contributor into the pension system, he would rather give up his cost of living adjustment "rather than have nothing in the end." "We need some kind of an adjustment in the COLAS or forego the COLAS altogether in order to have modest pensions," he said.
"There are a lot of unions out there and no matter what the General Assembly passes, a lawsuit will be filed the same day," Cullerton said. "No matter what they do, there will be some kind of a challenge in the courts to see if what they are doing is constitutional."
Cullerton said that the state Constitution says that benefits cannot be reduced.
According to the analysis, the corporate fund will decrease by 6 percent in 2014 because the city expects not to carry over any balance from 2013 to 2014. Also, the employer’s expenses tax will be eliminated on Jan. 1.
When Emanuel was running for mayor in 2011, he campaigned on a promise to eliminate the $4-per-employee monthly tax over 4 years.
The tax was usually levied on businesses with more than 50 employees and generated an average of $23.4 million per year from 2003 to 2011. The tax was reduced to $2 last year and revenue declined to $17.9 million in 2012 and to $11.4 million this year, according to the report.
Utility taxes will stay at about $453.9 million in 2014 because electricity tax revenues and cable television tax revenues will increase. Amusement taxes are expected to grow next year with the increase in tourism and business travel. Increases in liquor and nonalcoholic beverage sales are expected to offset declines in cigarette tax revenues as more people quit smoking.
The analysis also states that the bulk of projected expenditures next year is due to personnel costs. Between 2003 and 2012, the number of employees has decreased by 17 percent but the corporate fund salary and wage expenditures have increased by more than 10 percent and health care costs have increased by more than 40 percent.
The analysis states that cost of living adjustments are unsustainable, that increased employee contributions must be phased in and that retirement ages do not account for longer life expectancies.