When Alex Holt assumed her duties as Rahm Emanuel’s new budget director, she faced what she calls a “structural deficit”. That refers to a built-in, never-ending and rapidly escalating difference between the City’s revenue and expenditures. And this wasn’t simply an issue of an economic downturn pinching City operations. In fact, Chicago’s expenditures had exceeded its income since 2001 – eleven years ago. And as we all now know, between 2007 and 2011, the budget was balanced each year with the use of “one-time asset reserves”. That’s budget talk for selling off assets (think the parking meter deal) that bring in money only once. Then the asset’s gone.
So, as Holt explains on this week’s show, her budget office set about closing a $654 million gap in the corporate fund with a mix of new revenues and cuts. The new revenues (such as hikes in water fees, etc.) accounted for about $75 million, and the rest came from restructuring, cuts, elimination or curtailment of services and the like. (By the way, Alex Holt argues that, at 1/3 cent per gallon, Chicagoans were paying some of the lowest water rates anywhere. Now it’s 2/3 cent per gallon.)
But the big issue is pensions.
Employees have been paying in exactly what they were supposed to pay, she says, and so have the taxpayers. “But those amounts of money have not been sufficient to pay out the benefits that have been guaranteed to those employees.”
So that’s why there’s an impending $20 billion unfunded liability in the pension system. And it has to be addressed by reducing benefits or sending taxpayers a huge bill.
By law, the taxpayer contribution goes up to 1.2 billion in 2015. “Our taxpayers can’t support that. They pay 470 million dollars now. In 2015 they’re going to have to come up with an extra 700 million dollars, and that’s not something that’s sustainable,” Holt says.
“When you take things like compounding cost-of-living adjustments which have outstripped inflation by 30% over that past ten years…those pension benefits are being paid by a return from the fund – the fund has invested the money, you’re getting a return – you’re paying out more than that fund can even generate as a return.”
So Mayor Emanuel has proposed a ten-year moratorium on the compounding cost-of-living increase, and discussions are underway about delaying the retirement age and increasing employee contributions – all debates that are taking place at almost every local and state government.
Holt talks about garbage collection and the recent switch to a “grid” system. Chicago’s garbage collection, she argues, costs $100 a ton more than in comparable large cities with unionized labor forces. So it’s less about the cost of labor and more about operational efficiencies. Instead of fifty individual ward collection systems, collections will be made according to a grid overlaid across the city map. And sanitation workers will be cross-trained, so as seasonal requirements change, so will their tasks.
And as for the Infrastructure Trust – it’s simply another tool for financing reconstruction, she argues, and it has nothing to do with selling off assets.