May 1, 2012
The following opinion piece by Civic Federation President Laurence Msall appeared in the May 1, 2012 edition of Crain’s Chicago Business.
Mayor Emanuel’s first full look at the City’s finances likely made him ask why he wanted to be mayor in the first place. When he took office last May, the City faced an excess of fiscal challenges including an immediate budget gap of approximately $650 million, growing long-term liabilities that threaten the survival of the City’s pension funds and a structural deficit that has persisted year after year, even during times of economic growth. Mayor Emanuel cited the city’s chronic fiscal problems in his inaugural address and promised a new era of fiscal responsibility and reform. The results of the 2011 election certainly gave Chicagoans reason to think that change was possible by ushering in the first new administration in over twenty years and eighteen new aldermen, the largest City Council turnover in decades.
In many respects, the Emanuel administration has seized the opportunity and made important strides toward fiscal stability. If Mayor Emanuel succeeds in reaching his proposed 2012 budget goals, the City’s FY2012 budget deficit of $650 million will be reduced by over two-thirds. Impressively, these deficit reductions will have been achieved while the city maintained a relatively flat property tax levy.
The administration has also implemented critical reforms to improve the City’s financial planning and transparency. These include an Annual Financial Analysis, mandated by Mayor Emanuel on his fourth day in office, and Quarterly Budget Reports which compare the City’s current financial position with budgeted revenues and expenditures. In addition, the Mayor has recently announced multi-year economic development and infrastructure plans that are aimed at identifying the City’s long- and shorter-term priorities. Mr. Emanuel’s successful establishment of the Chicago Infrastructure Trust highlights both the city’s multi-billion dollar infrastructure needs and its lack of resources to address those needs. The City Council’s recent insistence on having their questions addressed before passing the ordinance to establish the Trust is a refreshing development and will be essential for the success of this innovative program.
While significant progress has been made, much more financially and politically challenging work remains for Mayor Emanuel and his team before the mission accomplished banner can be hung over City Hall. The current budget reduces but does not eliminate the City’s chronic structural deficit. The City also faces a high debt burden and growing long-term liabilities.
Primary among the long-term liabilities is the City’s urgent pension funding crisis which demands immediate attention from the Mayor, City Council and Illinois General Assembly. The City of Chicago now has $14.8 billion in promises to current and future retirees for which it has no identifiable means to pay. This unfunded liability has increased by nearly 450% in the last decade and will continue to skyrocket without significant structural reforms to the City’s pensions. Unfortunately, there are no easy or politically attractive fixes, but the magnitude of the crisis demands comprehensive reforms such as benefit reductions for current employees, reducing the 3% annual increase for retirees and increasing both City and employee contributions to the funds. Consolidation of the City’s four pension funds should also be pursued for greater cost-efficiency and transparency.
Mayor Emanuel and his administration have moved the City of Chicago in a positive direction by working to reduce the structural gap, but they now have a larger task ahead – eliminating that gap completely while fixing the City’s broken pension system. Let us hope that the administration’s strong fiscal performance in year one is a catalyst for continued strides toward financial stability in the coming years.
Laurence Msall is president of the Civic Federation, an independent, non-partisan government research organization that promotes efficient delivery of public services and sustainable tax policies in the Chicago region and State of Illinois.