(Updates with market reaction in ninth paragraph.)
July 29 (Bloomberg) -- Chicago’s budget deficit for fiscal 2012 is projected to be $635.7 million, Mayor Rahm Emanuel said today, and could approach $800 million by 2014.
The gap is almost $50 million wider than the city’s estimate of $587 million when Emanuel became mayor of the nation’s third-largest city in May.
“We have a structural problem, and the moment of truth has arrived,” Emanuel said at a City Hall news conference. “An economic recovery will not solve this problem for us.”
Chicago’s budget for the current year is $3.2 billion. Emanuel is scheduled to present his fiscal plan for 2012 in October.
The city has projected a budget deficit every year since 2001, reflecting a “structural” problem with city finances, he said. The mayor said that while he won’t reduce the city’s police force, he will seek work-rule change from employees. He again ruled out tax increases for people who “feel nickeled and dimed.”
“I can’t ask people to pay more into a system that needs fundamental restructuring,” he said.
AFSCME Council 31, which represents 4,000 city employees, said in a statement that Chicago “is at a crossroads” and that the union is ready to work with Emanuel, to a point.
“Will he cut top-heavy management and clout-heavy contracts and make big corporations pay their fair share of the costs?” Henry Bayer, AFSCME Council 31 executive director, said in the statement.
Even as Chicago’s budget deficit has mounted, its borrowing costs have fallen. A taxable Chicago general obligation bond maturing in January 2035 yielded 6.07 percent in trading today, data compiled by Bloomberg show. The extra yield investors demand to hold the bond instead of 10-year Treasuries narrowed to 328 basis points, compared with 437 basis points Jan. 21. A basis point is 0.01 percentage point.
The new deficit projection follows the May 6 announcement by former Mayor Richard M. Daley’s financial team that the expected shortfall for 2012 had dropped 10 percent to $587 million.
That decrease from an earlier estimate of $655 million, which the Daley administration forecast in July 2010, was “a reflection of the slight uptick in revenues and the aggressive efforts to hold down headcount and expenditures,” Eugene Munin, the city budget director, said at the time.
‘Good Financial Stewards’
Those figures, coming 10 days before Daley left office after 22 years, amounted to a closing argument on behalf of the Daley administration as “good financial stewards” for the city, in the words of Chief Financial Officer Gene Saffold.
The projected shortfall for the 2012 budget is “a painful message,” said Laurence Msall, president of the Civic Federation, a non-partisan research organization in Chicago.
“There can be no sacred cows,” Msall said in an interview, adding that the budget cannot be balanced without a cut in the city’s payroll.
Emanuel, 51, in the past has criticized Daley’s leasing of some city operations and said reserve funds from those agreements shouldn’t have been used to balance budgets. Lease agreements for the Chicago Skyway and the city’s 36,000 parking meters enabled the city to keep property taxes stable through the recession, Saffold said at the May 6 news conference.
The new mayor won’t have the money from leasing parking meters that Daley tapped. His repeated use of such reserve funds to balance budgets led Standard & Poor’s to cut Chicago’s credit rating on Nov. 5 by one level to A+, the fifth-highest grade.
--With assistance from Sarah Frier in New York. Editors: Flynn McRoberts, Brenda Batten
To contact the reporter on this story: Tim Jones in Chicago at firstname.lastname@example.org
To contact the editor responsible for this story: Flynn McRoberts at email@example.com