Chicago tries art of fiscal juggling
By Lucia Mouat, Staff correspondent of The Christian Science MonitorChicago
For a growing number of cities, the job of keeping bills paid and budgets balanced is evolving into a highly skilled juggling act. Faced with less money from Washington and taxpayer resistance to further property tax hikes, many cities searching for new sources of revenue are pioneering in what might be called creative taxing and borrowing. Just as home owners have had to resort to imaginative financing to sell their property, so cities find they are constantly pressed to devise new income strategies to pay for the daily services they must provide.Skip to next paragraph
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Chicago, while regarded as in far better financial shape than New York, Cleveland, or Detroit, in many ways exemplifies the new juggling strategy at work.
The city has been having a particularly tough time of late in financing its school and mass transit operations. Chicago Mayor Jane Byrne's fund-raising strategy, which reaches for a new detour as fast as roadblocks appear, makes headlines here on an almost daily basis. The result has left some Chicagoans trying to follow it a bit breathless. As one recent editorial in Chicago's sun Times put it: "We prefer less excitement and more dull stability."
One of the key new difficulties that Chicago and other cities are beginning to encounter is a poor market for the sale of many municipal bonds at rates offered. Just last week Chicago offered $140 million in municipal notes intended to finance transit operations through next March. Almost as swiftly, they were withdrawn. A key reason: public demand at the price and interest rate offered was not there.
New York's Citibank, the main underwriter of the offering, says it expects the notes to be back on the market in four to six weeks when market conditions are better and legal issues surrounding the sale are resolved. But some city fiscal experts, such as Donald Beatty, executive director of the Municipal Finance Officers Association, say they think market conditions for bonds mary remain tough for some time to come.
"My own prediction," says Mr. Beatty, "is that any governmental unit is going to have a difficult time selling securities at reasonable rates as long as there is inflation and the new All Savers Certificate offered by savings and loan firms. For all practical purposes the certificate has destroyed the municipal bond market. . . . The economy itself is going to have to get somewhat better before there's any improvement."
What puts Chicago on an especially difficult course in the search for new sources of revenue is the fact that Mayor Byrne opted, in the face of what she felt was too little state help with too many controls, to pull the city's mass transit operation out of the regional system. She vowed that Chicago could and would if necessary run the system alone. A spokesman for the American Public Transit Association confirms that most big-city transit systems are regionally operated and rely on at least some state funding.
While the city's public position is that it woudl still welcome state help to keep the transit system running, the Illinois Legislature will not convene again until October and downstate lawmakiers have made it clear they are opposed to further aid without corresponding reforms and service cuts.
Accordingly, the juggling to keep bills paid continues.
When local banks questioned the legality of raising local funds by the mayor's bond sale to support a state-created transit system, she promptly reached out to New York's Citibank to under write the notes. The Chicago banks, she said, "couldn't move fast enough."
To pay off the bonds, the city launched an interim property tax increase and proposed new or increased taxes in three areas: a new 1 percent tax on professional services, a 5 cent tax on cigarettes, and a hike in the city's retail sales tax. The service tax is being challenged in court by the Chicago Bar Association on grounds that it is in effect an occupation tax and as such illegal under state law.
When a new roadblock appeared as the bonds were withdrawn from the market, the mayor -- after several interim tries elsewhere for an emergency loan -- finally reached agreement with Illinois Governor Jim Thompson and a coalition of Chicago banks to get an immediate $60 million loan to keep the Chicago transit system operating.
In the end the governor cooperated in the rescue effort, although Mayor Byrne had been sharply critical of him for what she saw as abandonment of his responsibility to help both the schools and the transit system. She had also charged that his fiscal policies virtually "bankrupted" the state.
Chicago faces still another major financial hurdle these days in finding the cash to open its schools Sept. 9 and keep them running.
The Chicago School Finance Authority, set up by state law a year ago to ensure that city schools keep a balanced budget, recently rejected the board of education's proposed financial plan for the next two years. A $151 million deficit projected for the 1982-83 school year stopped the approval. The Chicago Teachers Union, which was on the verge of winning 14 percent wage increase over a two-year contract, promptly termed the authority's action a "vote to close the schools."
Technically the school board's budget is separate from the city's. However, Mayor Byrne, well aware that in the eyes of most residents the two stand together, has vowed that the schools will open on time regardless of what happens. Her hope is to borrow $100 million against future state school aid by selling city notes to the state. She insists no more spending cuts are in order but has been presiding over an effort to renegotiate the teachers union contract.
Veteran financial analysts view the kind of juggling going on in Chicago and the forced coming-to-grips with priorities as a sign of more to come.