Chicago projects shrinking budget gaps in 2017 and 2018

[August 01, 2017]  CHICAGO (Reuters) - Chicago will continue to shrink its structural budget deficit in 2017 and 2018, but faces new pension funding pressures starting in 2020, according to a financial analysis released by the city on Monday.

The nation's third-largest city projects it will end fiscal 2017 on Dec. 31 with a $137.6 million gap in its $3.73 billion operating budget, down from $232.6 million in fiscal 2016. In fiscal 2018, the deficit is expected to fall by 17 percent to $114.2 million.

The city's budget gaps have been declining since hitting a high of $654.7 million in fiscal 2011.

"This decrease is a direct result of sustainable and balanced revenue growth coupled with lasting savings and reforms made in the past six budgets," the city's analysis said.

Chicago has taken big steps in recent years to shore up its four employee retirement systems by hiking property taxes for its police and fire fighter funds, levying a new tax on water and sewer usage for its municipal workers' fund, and increasing a telephone surcharge for its laborers' fund.

The city is gradually increasing contributions to the systems until it meets requirements for actuarially funding public safety worker pensions in 2020 and for the other two systems in 2022. As a result, Chicago's pension payments will jump from $1.18 billion in fiscal 2018 to a projected $1.7 billion in fiscal 2020, topping $2 billion in fiscal 2022 when all four systems will be on an actuarially funded path, according to the analysis.

The downtown skyline is seen in Chicago Illinois, September 26, 2015. REUTERS/Jim Young

At the same time, the city is weaning itself off of one-time revenue fixes, such as so-called scoop and toss restructurings of outstanding bonds to push off debt payments.

Chicago's base budget forecast indicates gaps of $212.7 million in fiscal 2019 and $330.3 million in 2020, although the projections do not completely account for escalating pension payments.

"The city previously secured ongoing and sustainable funding sources to match these growing contributions, and the funding sources for these increased contributions will be determined through our annual budget process," the analysis said.

The city's total unfunded pension liability, which climbed to $35.76 billion in fiscal 2016 from $33.8 billion in fiscal 2015, has been a concern of credit rating agencies that currently rate Chicago at the low investment grade to junk levels.

(Reporting by Karen Pierog; Editing by Matthew Lewis)

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