UPDATE 1-Chicago mayor's budget aims to shrink deficit
* Emanuel's second budget since becoming mayor
* Cites looming $1.2 bln pension problem
* Revenue growth, other measures to close gap
CHICAGO, Oct 10 (Reuters) - Chicago Mayor Rahm Emanuel unveiled an $8.35 billion all-funds budget on Wednesday that eschews tax hikes but continues to squeeze savings and revenue from various operations to tackle a $298 million structural deficit.
Emanuel's second budget since becoming mayor aims to close the deficit further as public pension problems threaten to impair the city's ability to provide core services within its current tax structure.
"This budget is both a dividend of the work we have done and a down payment on the hard work to come," the mayor said in his address to the city council.
The projected fiscal 2013 deficit was whittled down to $298 million from $369 million in July as revenue collections, which have sagged in the wake of the economic recession, perked up and various cost-saving measures took hold, the city announced last month. Heading into fiscal 2012, the budget gap was much higher at $635.7 million.
The mayor warned aldermen that the city's pension payment will consume 22 percent or one of every $5 in the budget in less than four years.
"That's $1.2 billion of taxpayer money, and growing, each year after that," he said, calling on Illinois lawmakers to pass pension reforms.
In a speech before municipal analysts in New York City on Friday, Emanuel said he was hopeful the state legislature would take up reform measures in January.
Chicago's four pension funds face a collective $19.2 billion unfunded liability at the end of fiscal 2012, according to a city website. Emanuel earlier this year proposed suspending cost-of-living increases for retirees, phasing in higher worker pension contributions and increasing the retirement age.
Alderman Edward Burke, who heads the council's powerful finance committee, said raising revenue for pensions will not work.
"Government can't tax its way out of this pension mess," he told reporters.
The pension problem led Moody's Investors Service in April to revise the outlook on Chicago's Aa3 credit rating to negative from stable.
The mayor's proposed fiscal 2013 budget includes operational spending of $3.157 billion, up from an estimated $3.14 billion in the current fiscal year, which ends Dec. 31. Emanuel's new spending plan also counts an estimated $1.81 billion in federal, state and other grant funds.
It also projects $42 million in additional revenue growth, a $40 million savings from a long-term debt refinancing, as well as $67 million saved through cuts, including layoffs and attrition, and reforms.
Laurence Msall, president of the Civic Federation, a Chicago-based government finance watchdog group, said the budget does include one-time revenue measures such as the debt refunding and the tapping of tax increment financing money.
"The mayor's proposal appears to be a reasonable plan to reduce the structural deficit, but will not eliminate it," he said.
Alderman Carrie Austin, who chairs the council's budget committee, said she will do her "level best" to get the spending plan passed.
"I know there are some parts in there where every council member might not be amenable to," she said, adding that she will work with those aldermen.