Chicago Deficit Narrows Despite Pension Uncertainty – City Analysis by Reuters

By Dave McKinney

CHICAGO – According to an annual financial analysis released by the city, Chicago’s budget deficit could drop to a 10-year low next year, despite ongoing funding uncertainties regarding its largest and most underfunded pension system.

The report forecasts that expenditures for fiscal 2017 will surpass revenues by $137.6 million, marking a 40 percent decrease from 2016 and representing the smallest gap since 2007, when the deficit was $64.5 million.

“This achievement is the result of hard work and tough choices that have set Chicago on a course toward long-term financial stability after years of mismanagement,” stated Mayor Rahm Emanuel.

Emanuel’s administration credited this improvement over the fiscal 2016 deficit of $232.6 million to various factors, including reductions in healthcare costs, lease consolidations, and energy efficiency initiatives. An influx of new funding will also assist in meeting the city’s obligations for three of its four pension funds in 2017.

Last fall, the city implemented a record $543 million property-tax increase designated for the police and fire pension funds. Additionally, the city secured final approval in the spring to extend state-mandated payments, despite pushback from Republican Governor Bruce Rauner.

In May, Emanuel reached an agreement with city laborers to allocate $40 million yearly from a 2014 increase in the city’s 911 telephone surcharge to prevent their pension fund from becoming insolvent.

A strategy to rescue the Municipal Employees’ Pension Fund from insolvency is still under development. This fund serves over 50,000 active and retired city personnel and is projected to exhaust its resources within the next decade, having reported $18.6 billion in unfunded liabilities at the end of 2015, up from $7.13 billion in 2014.

In June, Standard & Poor’s cautioned that the city, which faces $33.8 billion in unfunded liabilities across all pension funds, might encounter further bond-rating downgrades unless substantial changes are made to the municipal fund.

During a conference call with reporters, Chicago Budget Director Alex Holt indicated that an announcement regarding a new revenue source for the municipal fund is expected within the next two weeks, remarking that “everything is on the table.”

The 2017 financial analysis also projected that budget gaps would persist through fiscal 2019, with the city’s deficit potentially ranging between $144.1 million and $780.1 million.