Mayor Emanuel warns of pension 'cliff' in 2014 budget speech

October 23, 2013

AP/file
Chicago Mayor Rahm Emanuel

Chicago Mayor Rahm Emanuel’s 2014 budget heavily relies on an improving economy to help fill city coffers and close a near-$339-million budget deficit. But the spectre of the city’s pension crisis loomed large as Emanuel unveiled his $8.7 billion spending plan to the City Council on Wednesday.

The mayor touted the fact that he will close next year’s “inherited deficit” without increasing sales, gasoline or property taxes. However, about $34.2 million worth of revenue in the form of higher taxes, fines and fees will hit everyone from motorists to smokers to cable-television providers.

Pension ‘fiscal cliff’

But with a relatively painless 2014 budget, the city’s future pension problem took center stage.

“Should Springfield fail to pass pension reform for Chicago, we will be right back here in the 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 people rely on,” Emanuel told aldermen Wednesday.

A massive spike in city pension costs will hit in 2015, when a state law requiring higher city contributions to police and fire retirement funds kicks in. The law, passed in 2010, was designed to get the city’s chronically underfunded pension funds back on track by 2040.

But Emanuel’s administration has said it would cripple the city with a more than $1.07 billion payment in 2015, up from an estimated $483.4 million next year.

“Let me be perfectly clear: The pension crisis in Illinois is not solved until relief is brought to Chicago and all of the other local governments across our state that stand on the brink of a fiscal cliff because of our pension liabilities,” Emanuel explained.

Emanuel didn’t offer specifics on what kind of pension changes he wants, but acknowledged it will likely require new revenue and that his “door is always open.”

Leading Illinois lawmakers have indicated they want to solve the state’s pension problems before dealing with those of local governments.

Cuts & revenue

To balance the 2014 budget, Emanuel is betting on $101.1 million in rosier-than-expected revenue from things like the hotel, sales and real estate transfer taxes, thanks to a growing economy and a rebounding housing market. The mayor is also counting on $66 million in cuts and efficiencies. He expects another $137.4 million from “improved fiscal management,” including $53.4 million from previous budget surpluses and unearthing $35 million in so-called “zombie funds,” which had been laying untouched.

But Emanuel did not spend much time Wednesday talking about the higher taxes, fines and fees that will help him balance next year’s budget.

The city’s motorists could feel the pinch in several ways.

The mayor is hoping to bring in about $50 million to $55 million off the city’s existing network of red-light cameras, and another $65 million to $70 million from its new network of speed cameras.  A WBEZ analysis found the first nine speed cameras alone would have brought in $13.9 million dollars in just the first six weeks of operation, and some aldermen have said they expect a much bigger windfall from the new program.

Higher parking violation fines and towing fees account for another $11.2 million in projected new revenue next year, Emanuel’s office announced Tuesday. The charge for illegally parking on a street during rush hour would jump from $60 to $100, while parking on residential streets during street cleaning days would mean a $60 ticket, up from $50, among other increases. The cost to store a city-impounded car after it is towed would double, from $10 a day to $20 a day.

The mayor’s proposed 75-cent-per-pack hike in the city’s cigarette tax, which would give Chicago the most expensive cigarettes in the country, seemed to raise the most concerns among aldermen. Some feared it would increase black market cigarette sales, while others simply said smokers would head to the suburbs to get their fix.

Emanuel is also relying upon $9 million to come from a hike in the city’s amusement tax which is tacked onto cable-television bills. Cable-TV companies would see their amusement tax exemption cut, thereby raising their effective tax rate from four percent to six percent.

The nine-percent amusement tax added to ticket prices for big concerts and sports events, and a smaller tax for mid-sized venues, would not change.

Developers could feel the sting too: Emanuel is also banking on $4 million in new revenue next year from higher fees for big developers who apply for building permits in person, rather than online.

Public safety

The mayor also said he was working to end the “tale of two cities when it comes to public safety.”

His budget includes money to graduate 741 cadets from the Police Academy next year, all of whom will be put on foot patrols in Chicago neighborhoods.

But the new cops will only keep pace with attrition in the department, it will not result in a larger number of cops on the street, despite Chicago’s notorious violence. Emanuel did, however, use Wednesday’s speech to pressure lawmakers to pass a state law requiring a three-year mandatory minimum prison sentence for people caught with illegal guns, despite skepticism from some crime experts.

“It’s not about putting more people in jail. It’s about putting the right people in jail,” Emanuel said.

Emanuel is also hoping to save about $26 million on health care costs, part of that from his phase-out of healthcare subsidies for about 30,000 city retirees and their families.

The City Council will begin budget hearings for individual city departments next week. Aldermen must approve a budget by the end of the year.

Alex Keefe covers politics for WBEZ. Follow him @akeefe.