Chicago mayor's budget squeezes many to end deficit

Chicago mayor-elect Rahm Emanuel gestures while answering a question during his first news conference after winning the election in Chicago February 23, 2011.

CHICAGO (Reuters) - Chicago would squeeze money out of employees, residents, visitors, commuters, nonprofit organizations and others to tackle a $635.7 million deficit under a nearly $3.1 billion operating budget unveiled by Mayor Rahm Emanuel on Wednesday.

The spending plan, which is part of an overall $8.2 billion proposed fiscal 2012 budget, relies on $417 million in savings and cuts including the consolidation of police services, the elimination of 776 vacant positions, 500 layoffs, stepped-up collection of money owed, changes in garbage collection, an employee wellness program and reduced public library hours.

The budget also counts on $39 million in "modest" revenue growth in the new fiscal year that begins January 1, along with a hike in the hotel tax just in time for Chicago's hosting of the G8 and NATO summits in 2012.

Nonprofit groups, including private schools and some hospitals, would no longer get a break on a host of city services such as free water, under Emanuel's budget.

"To everyone who has not paid their fair share: Ladies and gentlemen -- the free ride is over," the mayor said in his budget address to the city council.

Emanuel, President Barack Obama's former chief of staff who took office in May, made it clear that years of spending exceeding revenue and one-time budget fixes must end.

"We can't kick the can down the road because we've run out of road," he said.

The mayor, speaking of Chicago's "unsustainable" pension obligations, said he will continue to work with state lawmakers on a solution. In the meantime, his budget seeks to end the city's payment for certain Chicago Public School employees' pensions, which would be cut in half next year.

The budget also targets commuters with higher parking fees to help fund mass transit and other projects to reduce downtown congestion. Residents would get a hike in water and sewer fees to finance a 10-year program to repair and replace aging pipes and infrastructure.

The city would also save $50 million from the refinancing of up to $750 million of outstanding general obligation and sales tax revenue bonds later this month.

The budget incorporates Emanuel's plan to phase out a $4 per employee fee paid by about 2,700 businesses with more than 50 workers. The spending plan would also plow $20 million into the city's rainy day fund.

Former Mayor Richard Daley largely relied on one-time measures, like tapping reserve funds to tackle previous budget deficits. But those actions contributed to downgrades of Chicago's debt ratings last year.

Alderman Edward Burke, who chairs the city council's finance committee, said while he expects aldermen will have input in the spending plan, he predicted it will be passed with "a clear majority."

(Editing by James Dalgleish)