CHICAGO Aug 1 Chicago said its budget deficit
was on track to shrink to just below $300 million in 2015, but a
state-mandated increase in pension payments would expand gaps in
The projected $297 million operating fund deficit, the
lowest for the city in seven years, is based on $3.22 billion in
revenue and $3.52 billion in expenses, according to an annual
financial analysis that Chicago released late on Thursday.
The projection assumes continued economic growth and a
return to normal revenue trends, which were affected by this
year's severe weather, a statement from Mayor Rahm Emanuel said.
Meanwhile, higher expenses were mainly due to increased salaries
and wages under collective bargaining agreements.
"While a $297 million budget shortfall is substantial, we
are making progress in righting the city's financial ship," the
mayor said in the statement.
A looming $500 million increase in pension payments to
Chicago's police and fire retirement systems would inflate the
deficit to as much as $1.2 billion in 2016 and $1.5 billion in
2017, according to the financial analysis.
Pension contributions, which are funded out of property
taxes and total $478 million in 2014, would rise to more than $1
billion a year for the third-largest U.S. city.
The report said an Illinois law requiring the payment
increase did not include cost-saving reforms or a gradual
funding increase. Without reforms, it said, the law "puts
retirees, taxpayers, and critical city services at risk."
Earlier this year, the Illinois Legislature did pass changes
requiring both Chicago and workers to increase pension
contributions to the city's municipal and laborers' retirement
systems. The law also ties cost-of-living adjustments for
pensions to inflation while skipping the adjustments in certain
years. The constitutionality of cuts to public worker pensions
in Illinois is currently being litigated in a state court.
On Wednesday, the Chicago City Council approved a plan to
increase an emergency services surcharge on phones to free up
money in the operating fund to make the higher pension payment
to the two funds.
Chicago's four pension funds were only 37 percent funded at
the end of 2013, and the unfunded liability totaled $19.2
billion, according to the analysis.
Severe pension funding problems have led Moody's Investors
Service to cut Chicago's credit rating four notches to Baa1
since July 2013.
The budget analysis showed Chicago's payments on its
outstanding bonds for airports, water and sewer, and capital
improvements growing to $1.7 billion in 2017 from $1.56 billion
in 2014. Debt service on general obligation bonds paid out of
the operating fund "will increase significantly from current
levels in future years due to growth from anticipated issuances
and the way in which the city's debt is structured," the report
Emanuel is scheduled to present his fiscal 2015 budget to
the city council in October. Chicago's fiscal year begins on
(Reporting by Karen Pierog; Editing by Lisa Von Ahn)