Emanuel Winnows Daley Crowd as He Confronts a $600 Million Fiscal Hangover

Rahm Emanuel, Chicago’s mayor-in- waiting, ran for office with the pledge of “no more business as usual” in the nation’s third-largest city.

In his transition to succeed Mayor Richard M. Daley on May 16, Emanuel is appointing an administration of outside professionals and some Daley allies to govern a city that is losing population, faces a 2012 budget deficit of more than $600 million and must, as Emanuel said yesterday, begin “charting a new course.”

While Emanuel can pick his own leadership team, a 40-year- old federal court decree limits his hiring control to about 900 of Chicago’s 40,000 employees. That makes charting new courses difficult, said Donald Haider, who in 1979 was budget director under then-Mayor Jane Byrne.

“When I got to City Hall 30 years ago, someone told me, ‘Kid, information is power, and you ain’t getting any,’” Haider said, referring to Chicago’s neo-Classical government headquarters as a “puzzle palace” that can confound the best- intentioned administrations.

After 22 years of Daley, practical reality dictates that the new mayor will need insiders with experience to navigate the thicket of Chicago politics, said Haider, who teaches at Northwestern University’s Kellogg School of Management.

Keeping it Close

“A lot about running Chicago is institutional knowledge,” he said in a telephone interview from Kellogg’s Evanston campus. “A lot of people have it, but they don’t want to share it.”

Emanuel shook up the leadership of Chicago Public Schools on April 18 with the appointment of Jean-Claude Brizard, superintendent in Rochester, New York, to run the district of 400,000 students and 675 schools. He also replaced the entire board with a collection of business executives.

Chicago teachers’ union leaders have bristled at Brizard’s advocacy of charter schools and linking pay to performance. Emanuel has said he’ll push for a longer school day.

Daley made similar vows -- two decades ago, said Linda Lenz, founder and publisher of Catalyst Chicago, a magazine that chronicles school reform.

“I remember Daley saying it was time to get some concessions from the unions,” Lenz said. “We’ve been fighting the same battles and the same issues for a long time.”

Skin in the Game

Emanuel, 51, signaled a different direction on fiscal issues by appointing Mark Angelson, former chief executive officer of Chicago-based printer R.R. Donnelley & Sons Co., to lead the newly created Economic, Budgetary and Business Development Council. Angelson, who agreed to work for $1 a year, will develop ways to cut costs while improving services, Emanuel said yesterday in a Chicago news conference.

“The status quo does not work,” Emanuel said in a public event yesterday sponsored by the Chicago Tribune. “You want change? Everyone has to have skin in the game.”

The appointments of people such as Angelson and Brizard were intended to send a message of change, said Dick Simpson, a professor of political science at the University of Illinois at Chicago.

“Everyone’s a reformer and everyone’s for change, but the question is, which direction?” Simpson asked. “Which way is this going to go?”

His appointment of Lois Scott as chief financial officer was less of a break from the past. Scott is president of the Chicago financial advisory firm Scott Balice Strategies, which is handling a $1.1 billion revenue bond sale next week for O’Hare International Airport improvements.

Her company also advised the Metropolitan Water Reclamation District of Greater Chicago on a 2009 bond sale that the Securities and Exchange Commission is examining.

Pension Gap

Emanuel faces a deficit of more than $600 million, not including hundreds of millions in unfunded pension liabilities. He has ruled out a property-tax increase and won’t have the kitty of money from leasing parking meters that Daley tapped.

Repeated use of such reserve funds by the current mayor 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.

Those conditions mean that Emanuel likely will have to push for more public-employee furloughs, firings and labor-union concessions, Simpson said.

“It looks like labor relations will be contentious,” he said. “That could be a real problem.”

Emanuel in a Feb. 8 speech called for a spending freeze and $75 million in immediate cuts. He released a six-page plan that outlined $500 million in potential savings through “efficiencies and better use of existing resources.”

While financial strains will worsen friction with the unions, it’s unlikely to lead to work stoppages, Haider said.

“I don’t see a lot of municipal strikes around the country -- what you see is grudging accommodation,” he said. “If you want to hold public office and expect your employees to love you, don’t run for mayor.”

To contact the reporter on this story: Tim Jones in Chicago at tjones58@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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