By Heather Gillers and Shayndi Raice
CHICAGO -- Chicago's mayor on Wednesday outlined a budget that
will rely on one-time fixes and cooperation from state lawmakers to
address Chicago's pension burden, the largest of any U.S. city.
As striking teachers marched outside City Hall Wednesday, Mayor
Lori Lightfoot, a former federal prosecutor who took office in May,
said in an address to the City Council that the budget "reflects
the reality that sacrifices are needed in the work that lies
ahead."
She is eschewing some of the nickel-and-dime approaches taken by
many cities, ending Chicago's practices of turning off residents'
water for nonpayment and suspending drivers' licenses for unpaid
parking tickets.
Ms. Lightfoot's efforts to close an $838 million budget gap in
the nation's third-largest city, where the population is shrinking
and teachers have been striking since Thursday, offers a window
into the challenge of addressing the burdensome legacy costs
weighing on many older American cities.
"Cities that have pension challenges are facing the same sort of
question, which is 'how do you cover future liabilities and current
costs without driving people away with higher taxes?'" said Michael
Pagano, dean of the College of Urban Planning and Public Affairs at
the University of Illinois at Chicago.
Cities' net pension liabilities grew 76% in nominal dollars in
the five years ending in 2017, according to a study by Moody's
Investors Service of cities rated by that firm.
The number of large cities that have on hand less than half of
the assets they need to pay promised future benefits doubled
between 2009 and 2015, according to a study by the Pew Charitable
Trusts. Cities in that situation include Philadelphia, Providence,
R.I., and Fort Worth, Texas, as well as Chicago, according to 2018
data from Merritt Research Services.
The reasons: Amounts owed to workers and retirees for pensions
have lagged behind the assets on hand to pay them. Losses in 2009,
plus years of falling short of investment targets, left pension
funds with far less than projected. Meanwhile, governments have
contributed to that shortfall by skimping on annual pension
contributions to balance budgets. Court protections in many states
have made it difficult to cut benefits for already hired
workers.
Rising costs for pensions and other expenses "have become a new
normal since the recession," said Mary Murphy, project director at
the Pew Charitable Trusts.
In an effort to shore up Chicago's finances, former Mayor Rahm
Emanuel, a former congressman and White House chief of staff who
served eight years, raised property taxes and helped attract new
investment and construction to the city's downtown. But decades of
paltry contributions to the city's four pension funds have left
Chicago $30 billion short, according to the city's estimates.
Chicago has the largest pension liability of any major city,
according to Moody's.
The city's pension cost jumps each year, leaving Ms. Lightfoot
to find $1.7 billion for pensions, up from $1.3 billion last year,
according to Chicago's 2020 budget forecast. That increase, along
with increasing expenses related to bond debt, lawsuits and labor
costs, fueled the budget gap, Ms. Lightfoot has said.
Ms. Lightfoot must also contend with the teachers' strike, going
on since Thursday over pay, class size and other issues. The school
district, which is run by a mayor-appointed board, sets its own
budget.
The $11.7 billion city budget Ms. Lightfoot presented Wednesday
included an increased fee on ride-sharing trips to the downtown
area, higher taxes on restaurant meals and increases to parking
meter rates. Budget documents showed the city was able to identify
nearly $300 million in savings through "improved fiscal management"
and other cuts, and plans to save another $200 million on a
one-time basis through debt refinancing.
Some of the new bonds will be backed by city sales taxes, which
some ratings analysts consider a particularly reliable revenue
source.
The budget now requires approval by the City Council. It is
implemented on January 1.
Some of Ms. Lightfoot's proposals rely on help from state
lawmakers, who face their own budget issues. The administration is
depending on cooperation from the legislature to help land a
Chicago casino and to revamp the city's tax on real estate sales, a
move Ms. Lightfoot's budget relies on for $50 million in
revenues.
Without that cooperation, Ms. Lightfoot said, the city will need
to make "painful choices," an apparent reference to the possibility
of raising property taxes, which she has made clear she is not
ruling out.
A spokeswoman said Ms. Lightfoot isn't currently considering
shoring up the city pension fund with borrowed money, a possibility
contemplated by Mr. Emanuel.
S&P Global Inc. analyst Carol Spain said she would like to
see Chicago more fully rely on stable, recurring sources of revenue
to close future budget gaps, rather than one-time fixes.
Write to Heather Gillers at heather.gillers@wsj.com and Shayndi
Raice at shayndi.raice@wsj.com
(END) Dow Jones Newswires
October 23, 2019 20:30 ET (00:30 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.