Out of Control Policy Blog

Chicago's Budget and the Prospects for Future Asset Leases

A Chicago Sun-Times editorial yesterday commented on Chicago Mayor Richard Daley's new 2010 budget, which would draw down the reserve funds created by the city's recent asset leases faster than anyone (including the Mayor) had originally anticipated:

Cities across America are struggling with similar deficits, with many turning to tax and fee increases and major service cuts.

But Daley says he won't go there -- and we're with him on that.

Instead, the mayor said Wednesday, he proposes spending $495 million from big reserve funds created by leasing the Chicago Skyway and the city's parking meters. He also is calling for 24 furloughs days for non-union employees, spending cuts, layoffs, elimination of vacant jobs and refinancing and restructuring of city debt.

Mostly, Daley is going after the parking meter fund, grabbing $420 million, while wisely not touching a $500 million long-term Skyway reserve fund. Preservation of the Skyway fund is essential to the city's long-term financial health and has led to an upgrading of the city's bond rating in 2006.

Still, Moody's Investors Service tells us there are risks in raiding the parking meter fund, potentially making it more expensive for the city to borrow money. The mayor and his financial team acknowledged that risk in a meeting with the Sun-Times Editorial Board on Wednesday, but played it down, emphasizing that the proposed budget still leaves the city with a $730 million reserve fund.

And, the mayor said -- and we agree -- he has no better options.

The decision certainly involves important potential risks and trade offs. But on a practical level, there's absolutely no political will for tax and fee hikes right now in the city council, and the process of determining round after round of budget cuts—which is absolutely necessary given the shortfalls Chicago is facing—is by its very nature slow, tedious and politically perilous. So while tapping reserves is suboptimal from a fiscal perspective, it's still the best of some bad options in the final analysis.

[Sidebar comment: scanning the coverage of this issue, it's ironic that the conversation has suddenly shifted from how supposedly "bad" the parking meter deal was (a bogus claim, I argue) to a recognition of how valuable the proceeds are to city finances. Hmmm.]

However, as Fran Spielman at the Sun-Times reports today, the administration may also be considering other privatization opportunities:

Daley could privatize the water system or just the sewer portion. He could revive the $2.5 billion Midway Airport deal that collapsed for lack of financing and lay the groundwork to do the same at O'Hare.

If he wants to reduce operating expenses without generating up-front cash, he could privatize garbage collection or recycling. Water billing and other revenue collections are also possibilities.

Read the whole article for more details on each idea. If any of these initiatives do materialize, they'll likely get significant public scrutiny given current local political sensibilities, but it's absolutely worth exploring all of these and more given the value that the previous asset leases brought to the city.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Leonard Gilroy is Director of Government Reform

« There Goes #100 | Main | Some Perspective on Virginia's IT… »

Comments to "Chicago's Budget and the Prospects for Future Asset Leases":

Rylee N. | October 24, 2009, 1:10am | #

Not only Chicago is expecting and expecting these future hazards. Government fund isn't enough to save the country and worse would be the decreasing hopes to stimulate again the economy. We all need a little debt relief, and the best way to relieve debt is saving money on expenses, and pay down debt with the extra cash. So here are a few debt relief tips: You can actually wait until 5 to 7,000 miles between oil changes, instead of 3. NOTA BENE – ONLY if you have a new or late model; if you're pushing 100,000 or more miles keep it between 3 and 4,000 miles. Also, don't buy extended warranties and use regular unleaded in lieu of premium. Warranties are no good for the average (new car every 2-3 years) and you don't drive a racecar. Cutting these and other costs can help make ends meet and aid in debt relief.

links of london Sweetie Bracelets | November 18, 2009, 2:11am | #

Elizabeth has been tasked with links of london Necklace Chipotle Mexican Grill links of london jewellery . The fast food at these casual links of london eateries feels slow, links london jewelry thanks to organic ingredients cheap links of london , custom combos

abercrombie | November 19, 2009, 2:20am | #

abercrombie Hoodies but froufrou dining off petite plates is out. abercrombie Polos The recession has made us hungry for family-size piles of comfort food, abercrombie fitch Jeans skyscraping burgers, abercrombie fitch Pants and all-you-can-eat fries abercrombie fitch Polos .

Out of Control Policy Archives