Chicago Mayor Richard Daley’s administration is projecting a half-billion dollar hole in next year’s city budget. And he’s not ruling out a tax increase to help fill it.

The city blames a steep drop in tax revenue for what it says is a $520 million budget shortfall for the next fiscal year, starting in January. Chief Financial Officer Gene Saffold says the mayor is dead-set against raising property taxes to help close that gap. But Saffold won’t rule out other tax hikes.

SAFFOLD: We’re gonna avoid raising taxes.  It’s always a last resort.  We’re gonna look first to management efficiencies and improving the way that we can deliver services.

But tightening the city’s belt another notch could be difficult. Labor unions have already agreed to $24 million in pay cuts. And they could be reluctant to take more.

The city also plans to use the bulk of the money from its recent parking meter privatization deal just to get through the end of this year. On top of that, Saffold is predicting tax revenues will drop even further in 2010.