Chicago mayor-elect says city's fiscal gap worse than $700 million

CHICAGO, May 17 (Reuters) - Lori Lightfoot, Chicago’s incoming mayor, said on Friday that the shortfall in the next city budget is worse than an estimate made this week by the current administration that topped $700 million.

Lightfoot declined to say how much worse the financial problem could be. The former federal prosecutor, who was elected in April as Chicago’s first black woman mayor, takes office on Monday.

“It’s important to us to actually get in and see the books for ourselves so we can understand what the magnitude of the challenge is,” she told reporters following the release of a report by her transition committees.

Lightfoot added that her administration is looking at options to deal with the “significant challenge.”

A chronic budget deficit along with a big unfunded pension liability have led to low credit ratings and high borrowing costs for the nation’s third-largest city.

According to Chicago’s finance department, more money may be needed in fiscal 2020 to cover payments on bonds and to make up for weaker-than-expected investment returns by city retirement systems in addition to a scheduled increase in annual pension contributions. That would push the $252 million budget gap projected by Mayor Rahm Emanuel’s administration for the fiscal year that begins Jan. 1 to more than $700 million.

Meanwhile, contracts have expired with unions representing police, firefighters and others.

In a July financial report, Emanuel touted a decrease in the city’s budget deficit from $635 million in 2012 to just $98 million heading into fiscal 2019, marking Chicago’s smallest projected shortfall since fiscal 2008. However, that report also showed annual pension contributions rising by nearly $1 billion by fiscal 2023.

With Emanuel opting not to run for a third term as mayor, Lightfoot, a political newcomer, faced a crowded field of candidates and won the office in April’s runoff election.

On Wednesday, Lightfoot announced her financial team, which includes Jennie Huang Bennett, the current chief financial officer of the Chicago Public Schools, as the city’s new CFO.

The transition report released on Friday offered suggestions for improving areas such as public safety, education, transportation and housing. (Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)