Rahm Emanuel: Can he handle Chicago's 'profound' financial crisis?

Chicago woke up Monday morning to something it has not seen in 22 years: a new mayor.

Rahm Emanuel ­ the former chief of staff to President Obama, a US Congressman, and a longtime Democratic Party strategist and fundraiser ­ became Chicago’s 55th mayor late Monday morning, succeeding incumbent Richard M. Daley.

The event was an all-star gala, bringing together politicos from Washington to Springfield. The new mayor’s most pressing challenge: Chicago’s budget deficit is estimated at $587 million, and the city owes nearly $600 million in pension obligations. The hole is expected to grow next year – a situation the new administration cannot ignore.

In past years, the Daley administration tried to shore up funds through tapping reserves, issuing furlough days for city workers, and using controversial privatization measures, such as selling the city’s 36,000 parking meters to Morgan Stanley for $1.15 billion in 2008, a deal that not only backfired on Mr. Daley politically, but proved only a temporary relief, as spending against the deal left the city with $346 million.

Mr. Emanuel’s financial challenges are exacerbated by “the fact that the city council and the past administration did not reduce the spending earlier,” says Laurence Msall, president of the Civic Federation, a Chicago-based nonpartisan advocacy group that analyzes government budgets.

“But the deficit was not created in one year, so it’s unlikely [Emanuel] will be able to eliminate the entire deficit in one year. But he can put the city on a path of progress and stabilization, and reverse the trend over a matter of years,” Mr. Msall says.

In his inaugural address, Emanuel called the city’s financial crisis “profound.”

“We cannot ignore these problems one day longer. It’s not just a matter of doing more with less. We must look at every aspect of city government and ask the basic questions: Do we need it? Is it worth it? Can we afford it? Is there a better deal?” he challenged Chicagoans.

During the five-month campaign, Emanuel proposed a spending freeze he says will shore up $75 million from Daley’s last budget. He also announced plans to cut city council committees from 19 to 16, to save about $470,000. Other possible changes include combining city departments to streamline costs and changing the way the city collects garbage and recycling, by inviting private companies to competitively bid against city departments. Last month, Emanuel announced the formation of a special council to examine the city’s budget and find money-saving ways to restructure city government.

Layoffs loom for Chicago employees

Although Emanuel has not yet how many – if any – city employees will be laid off, current spending allocations make layoffs appear inevitable. The Civic Federation reports that over 80 percent of Chicago’s budget goes to wages and benefits of its employees.

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