Chicago Sees Smallest Budget Gap in Four Years After Cut

Chicago is forecasting its smallest budget gap since 2009, and Mayor Rahm Emanuel says the city is in a stronger financial position after making “tough but necessary choices.”

The projection for the third-largest U.S. city, contained in an annual financial analysis, forecasts a 2013 deficit of $369 million, roughly half of what it was a year earlier. Emanuel cut $410 million from the current-year budget of $6.3 billion through personnel reductions, health-care cost savings and closing six mental-health clinics and three police stations.

“We are continuing to make the difficult but necessary choices as we right the city’s financial ship and stabilize its fiscal future,” Emanuel said in a statement accompanying the report.

The deficit estimated for 2013 will widen to $466 million in 2014 and to $580 million in 2015 without additional spending reductions, according to the analysis. Emanuel is scheduled to present next year’s spending plan to the City Council in October.

Part of the city’s financial stress stems from “outsized pension pressures,” unemployment and a home-foreclosure backlog, according to Moody’s Investors Service, which assigned a negative outlook on April 26 to the city’s general-obligation debt.

While the ratings company said the Emanuel administration has addressed infrastructure needs and reduced reliance on cash reserves, failure to cut pensions costs will likely result in a weakening of the city’s credit quality, Moody’s said.

Retirement costs will take up about 22 percent of the city’s corporate budget by 2016 without changes to the system, Emanuel told state lawmakers in May. His pension recommendations include raising the retirement age, phasing in higher employee contributions and suspending cost-of-living payments.

Illinois Governor Pat Quinn yesterday called state lawmakers into an Aug. 17 special session to consider changes to the state’s pension system.

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

To contact the editor responsible for this story: Flynn McRoberts at fmcroberts1@bloomberg.net

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