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Washington Examiner


New Mayor Rahm Emanuel Is Tackling Chicago's Budget

April 14, 2011

By Josh Barro

Like most American cities, Chicago has faced substantial budget gaps for the last few years. For fiscal 2011 (which ends this July), the city faced a shortfall of more than $650 million.

Where Chicago is unusual is in the way it has dealt with this situation: Mayor Richard Daley closed most of the 2011 gap with proceeds from selling the city’s assets -- including a toll road and the rights to operate the city’s parking meters for the next 75 years -- to private operators.

Irresponsible budgeting is a favorite pastime in Illinois, which hasn’t balanced its state budget in more than a decade, so it’s no surprise that Chicago went this route. However, this strategy cannot work forever.

The city is running low on valuable assets to sell, and the parking meter sale, widely loathed for driving up parking rates, has soured voters on the idea of looking for similar one-shot revenues.

That means incoming Mayor Rahm Emanuel will have to close next year’s budget gap, which will be at least $500 million, the old-fashioned way: with more taxes and/or less spending.

Fortunately for Chicagoans, Emanuel ran on a detailed platform of spending cuts aimed at making the city’s delivery of services cheaper and more efficient. At the center of this plan is a practice pioneered by former Indianapolis Mayor Steve Goldsmith.

In “managed competition,” city departments bid against private contractors to provide services. Emanuel notes that since Charlotte, N.C., adopted this practice, public departments have won 70 percent of bids, but the bidding process has encouraged those departments to find ways to do their work more efficiently.

Part of Emanuel’s savings plan involves taking on fiefdoms within city government. Bizarrely, Chicago essentially has 50 separate sanitation departments, divided by city-council ward.

Drivers pick up garbage on routes designed to stay within one ward, where the local alderman uses the operation for patronage. Emanuel expects to save $65 million simply by moving to a more sensible and efficient system of garbage collection.

Emanuel has also echoed Michael Madigan, the speaker of the Illinois House of Representatives, by saying that he wants to cut the pension benefits that current city employees can accrue in future years.

This reflects a recognition that the city’s out-of-control pension costs will otherwise force it to sharply raise property taxes -- especially after Illinois passed a law last year forcing Chicago to make actuarially sound pension contributions (unlike the state, which continues to shirk its own).

These calls for reform may sound surprising from a Democratic politician in a heavily Democratic city. They definitely earned Emanuel the enmity of the city’s public-sector unions, none of which endorsed his bid.

He’s also an avowed school reformer, to the chagrin of the Chicago Teachers Union. He managed to win the February mayoral election nevertheless, with 54 percent of the vote in the six-candidate race.

Emanuel’s platform is mostly a reflection of necessity. Chicago has one of the highest sales tax rates in the country -- 9.75 percent, recently reduced from 10.25 percent -- and the state income tax recently rose from 3 to 5 percent.

A massive budget gap at the state level means that future tax increases are likely. Like Gov. Andrew Cuomo in New York, Emanuel is recognizing that there is no room left to tax more, and that it is time for both Republicans and Democrats to wield the budget scalpel.

Emanuel had a reputation for leading with an iron fist in Washington. If he succeeds in getting a handle on Chicago’s budget, he may set an example for lawmakers in Springfield and around the country about the benefits of tough and smart leadership.

Original Source:



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