Chicago mayor offers budget to cut gap, warns on pensions

CHICAGO (Reuters) - Chicago Mayor Rahm Emanuel on Wednesday proposed a 2014 budget that reduces an ongoing imbalance between revenue and spending by about a two-thirds, but he warned that the city's outlook could worsen if state lawmakers fail to deliver on badly needed pension reform. Emanuel's spending plan relies on cuts, revenue increases and one-time measures to balance the budget, while shrinking an ongoing $339 million deficit by $230 million. The proposed budget avoids increases in property, sales or gasoline taxes, in favor of a continued squeeze on city spending, including changes to healthcare programs for current and retired workers that would save $26 million. One-time measures, which Emanuel said he would avoid using when he took office in 2011, include tapping excess revenue from various accounts and development districts. Emanuel said the budget situation could change dramatically if pension changes are not forthcoming from the Illinois legislature. "Should Springfield fail to pass pension reform for Chicago soon, we will be right back here in council early next year to start work on the city's 2015 budget - a budget that will either double city property taxes or eliminate the vital services that people rely on," Emanuel said in his budget address to the city council. Chicago is facing a projected $600 million increase in pension payments in 2015 due to a 2010 Illinois law that mandates contributions to the city's fire and police funds starting that year. The payments would be based on normal retirement benefit costs and the amount of money needed to cover unfunded liabilities over a set period of time. Under that law, pension payments to the city's four funds through 2020 could average $1.162 billion a year, up 147 percent from the average over the last five years. Emanuel's all-funds budget for 2014 totals $6.98 billion, including a $3.29 billion city operations. The mayor - hampered by tepid revenue growth, the large structural deficit heading into 2014 and the uncertainty over future pension payments - did not call for any sweeping new initiatives for the city, the nation's third largest. His budget would impose a 75-cent-per-pack tax increase on cigarette sales to bankroll a program to enroll children in Medicaid, the state and federally funded healthcare program for the poor. Emanuel is also counting on $101 million in revenue growth, largely from fines from the introduction of cameras to catch speeders that are expected to total as much as $70 million. Laurence Msall, president of the Chicago-based Civic Federation, a government finance watchdog group, said the proposed budget appears to contain about $100 million of one-time measures, but he added it also significantly reduces the structural deficit. "This budget buys time for the next year for the city of Chicago to operate, to make some modest investments in some priority areas," Msall said. "It does not get us past that cliff that occurs in 2015 when the city has to find $600 million or receive the benefit of pension reform from Springfield," he said. The Emanuel administration is ratcheting up pressure on state lawmakers to pass pension reforms or give the city some relief from the looming jump in pension contributions. Emanuel failed to win pension concessions from the city's police sergeants union earlier this year, and the Democrat-controlled legislature, which has been unable to come up with a plan for the state's own huge pension funding problem, has made no known progress on relief for Chicago. In his speech, Emanuel said the city is willing to come up with new revenue for pensions but only if accompanied by reforms. Alderman Carrie Austin, who heads the city council's budget committee, said city workers also have to recognize they have to give something to keep the city afloat. "I much rather have a pension than to not have nothing at all," she said in an interview on the council floor after Emanuel's address. "So to continue to go the way we're going now we won't have anything." Alderman Edward Burke, the long-time chair of the city council's finance committee, said the pension fund for firefighters could be broke by 2021. "Not only do we have a legal obligation to those people who devoted their lives to public service, we have a moral obligation," he said. As for Emanuel's budget plan, Burke said it appears to try to do more with less. (Reporting By Karen Pierog, editing by David Greising)