CHICAGO (Reuters) - The Chicago City Council gave final approval on Tuesday to a fiscal 2018 budget that Mayor Rahm Emanuel said keeps the city’s shaky finances on a path toward stability.
Emanuel, who took office in 2011, said the city needs to keep addressing its fiscal challenges. “Our work isn’t done,” he told the council following the 47-3 budget vote. “Nobody is sitting here spiking the ball at the 20-yard line.”
Through tax hikes and other actions taken since Emanuel took office, the city has reduced its structural budget deficit from nearly $636 million to $114.2 million in 2018. After falling every year since 2011, the gap is projected to increase to $212.7 million in 2019 and to $330.3 million in 2020 as the city faces growing contributions to its four retirement systems.
The chronic deficit along with an unfunded pension liability that totaled $35.76 billion at the end of 2016 have led to low credit ratings and increased borrowing costs for the nation’s third-largest city.
The $8.6 billion budget for the fiscal year beginning Jan. 1 includes $3.77 billion in spending for operations and relies on $94 million in savings from a big bond refinancing under a new debt structure.
Chicago plans to sell $574.5 million of highly rated tax-exempt and taxable bonds through a new Sales Tax Securitization Corporation in mid-December to refinance outstanding lower-rated sales tax revenue bonds. That sale will be followed by a $905 million bond issuance in January to refinance outstanding general obligation debt.
The corporation will pledge Chicago’s state-collected sales tax revenue to pay off the refinanced bonds. Bond investors will have a statutory lien shielding the debt from municipal bankruptcy, which is not allowed under Illinois law. The bonds are rated AAA by Fitch Ratings and AA by S&P Global Ratings, both of which are several notches higher than the city’s GO ratings of BBB-minus and BBB-plus respectively.
S&P said the budget Emanuel proposed last month makes “incremental process.”
“Although it would move the city forward, more action is needed to put Chicago on a path to fiscal sustainability,” S&P said in an October report.
The fiscal 2018 budget counts on $50.3 million in revenue growth, while adding new spending for police hires and reforms, the Chicago Public Schools and the Chicago Transit Authority.
Reporting by Karen Pierog; Editing by Matthew Lewis