By PIERRE de VISE
Assistant professor of urban sciences, University of Illinois at Chicago Circle

Chicago in the red — not the pink

IN DECEMBER 1979, when an apparent deficit of $40 million became a deficit of $400 to $500 million in Chicago's school budget, Mayor Jane Byrne accused the school board of a 10-year cover-up of school finances. This revelation led to the resignation of the school superintendent, the president of the school board and the board's financial officers. The mayor and the remaining members of the school board claimed not to know the true extent of the board's financial difficulties, having been misled, they said, by the superintendent and his financial officers.

On a smaller scale, the city administration has engaged in the same kind of fictitious budgeting and book-juggling which led to the huge shortfalls in Chicago's school budget. Because of enormous political pressures, municipal finance directors in Chicago and elsewhere have resorted to phantom budgets, converting short-term loans into long-term loans by transfers from one fund to another, creating cash surpluses by overestimating anticipated taxes or by changing accounting procedures, and other strategems to understate or defer budget deficits.

These questionable procedures often come to light when a challenger defeats an incumbent candidate. Thus Jane Byrne, after her successful mayoral campaign, claimed that book-juggling concealed a budget deficit in the range of between $50 and $150 million, a contention which was disputed by the outgoing city treasurer. In December 1979, Mayor Byrne's 1980 budget announced an increase of $53.6 million (or 19.5 percent) in the property tax, including $29 million to cover the gap left by the defunct personal property tax, and $24.6 million to meet a budget deficit concealed by previous budgets.

Chicago's municipal budget is bafflingly complex, and past financial directors have likewise tended to cover up signs of fiscal decline and deficits. There is probably no one person in Chicago or the country who keeps track of the more than 400 funds that make up the city's budget.

The General Fund, and the property tax levy are popularly regarded as the bulwark of Chicago's budget. In the most recent city comptroller's report, released in 1978, this General Fund is treated as the showcase budget and hailed as a model of municipal finance. Not only did this fund show a surplus of $30 million, but also the tax levy was 5 percent lower than in 1971. This is also the fund that was rated AA + by Standard and Poor's.

The reduction in the tax levy reported between 1971 and 1977 occurred during a period when the property tax base declined by $61 million while the General Fund revenue grew by $260 million. This apparent contradiction is explained by the drastic reduction in reliance on the property tax levy. The tax levy contributed half of General Fund revenue in 1971, but only one-fifth of revenue in 1977. Chicago was able to create new taxes made possible by home-rule provisions of the Constitutional Convention of 1970.

The General Fund accounts for about half (the proportion varies from year to year) of total revenues reported by the city. Twenty-two major funds and about 400 minor funds account for the balance of revenues reported.

However, not all revenues and not all expenditures are reported in the comptroller's report. For fiscal 1977, total revenues of $1,141 billion and total expenditures of $1,224 billion are reported. Revenues account for but 93 percent of expenditures. Comparable figures reported by the comptroller in previous years show even larger discrepancies. Total revenue covered only 84 percent of expenditures in fiscal 1970 and 57 percent in fiscal 1960.

The largest item of revenue left out of the comptroller's report is intergovernmental revenue. Except for federal revenue sharing funds which must be reported in the budget by federal law, most federal and state grants-in-aid are not shown in Chicago's budget. We must turn to the Census Bureau's annual reports on city government finances for estimates and sources of intergovernmental revenue. Although these estimates, too, lack reliability, they are the best sources available for a full accounting of Chicago's budget.

According to the census estimates, the city of Chicago in fiscal 1977 received $1.46 billion in total revenue. Of this amount, $805 million (or 55 percent) came from local taxes and fees; $424 million (or 29 percent) came from intergovernmental grants;$ 93 million (or 6 percent) came from utilitity revenue; and $138 million (or 9 percent) came from employee retirement revenue. The federal government's share was 17 percent of total revenue, up from 12 percent in 1970 and 2.5 percent in 1960. The state's share of total revenue was 9.5 percent in 1977, up from 7 percent in 1970, and down from 10.5 percent in 1960. Total revenue amounted to 108 percent of total expenditures in 1977, 92.5 percent in 1970, and 84 percent in 1960, discrepancies which reflect more the

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The Rostrum

inaccuracy of the estimates than surpluses and deficits.

Chicago's increasing reliance on federal grants-in-aid is overshadowed by boosts in other federal, state and local government expenditures in the city. Public expenditures by all governments in Chicago approximately doubled between 1970 and 1978 — from about $5 billion to $10 billion. In contrast, Chicago's budget grew only by 58 percent in the same period — from $859 million to $1,358 million. Its proportion of total public expenditures slid from 17 percent to 14 percent. Chicago's traditional tax levy grew but by 11 percent — from $336 million to $380 million. The tax levy's proportion of total public expenditures fell from 7 percent to 4 percent since 1970.

There is probably no one person in Chicago or the country who keeps track of the more than 400 funds that make up the city's budget

Among the 10 major governments spending money in Chicago, the federal government accounts for the lion's share of public expenditures. Because of the reluctance of local governments to pass federal and state transfer payments through their budgets, there are no hard figures of federal expenditures in Chicago; but estimates do exist. After deducting for Social Security payments, the Community Service Administration (CSA) shows federal expenditures growing from $2.1 billion to $5.8 billion between 1970 and 1978, a gain of 176 percent. More painstaking estimates undertaken by a University of Michigan study team under contract with the U.S. Department of Housing and Urban Development (HUD) show somewhat lower estimates — $3.5 billion in 1975, $4.7 billion in 1977 and $5.2 billion in 1978, representing a 58 percent gain for the three-year period. According to the CSA estimates, the federal government spent 2.5 times more in Chicago than Chicago's government in 1970 and 4.3 times more in 1978.

State expenditures in Chicago have also greatly escalated in the 1970 decade and have helped fill the gap between Chicago's fiscal capacity and need. But the state estimates are not part of the public record, possibly out of fear of unfavorable reaction by suburban and downstate taxpayers.

Chicago's increasing reliance on new sources of local taxes and on the unreported federal grants-in-aid pose a number of problems for the immediate future. First, the new local taxes are sales taxes and fees that fluctuate with economic cycles, in contrast with the inelastic property tax base. Secondly, Chicago has exhausted most of the new tax opportunities available under home rule as evidenced by reliance on the property tax to meet a shortfall of $59 million in 1980. The administration is now exploring the possibility of the state legalization of casino gambling to emulate the fiscal success of Monaco, Las Vegas and Atlantic City. Thirdly, Chicago's increasing reliance on state and federal aid, a problem faced by a majority of the nation's older cities, comes at a time when suburban voters are becoming a plurality if not majority bloc in Congress and in many urban states like Illinois. Suburban and downstate voters are stiffening their resistance to increased urban appropriations as typified by California's Proposition 13 and the shredding by Congress of urban appropriation bills in implementation of the National Urban Policy.

The unwillingness of suburban and downstate taxpayers to underwrite Chicago's increasing costs of public services threatened the shutdown of the Chicago Transit Authority's (CTA) operations and the schools in December 1979. The six-county Regional Transportation Authority (RTA) balked at subsidizing the cost-of-living wage escalation provisions enjoyed by CTA employees. Subsequent negotiations aimed at modifying this clause led to a three-day wildcat strike the week before Christmas 1979. That same week, the governor refused to loan the school board the $50 million needed to pay the teachers, an action which led to Chicago's first payless payday for teachers since 1933. Gov. James R. Thompson had made two previous advances to meet the payroll of Chicago's Board of Education but required that the city and banks match future state advances.

Not just inflation, and a dwindling tax base, but the almost daily revelation of loafing, double-dipping, bribery, graft, theft and collusion with criminals on the part of city workers and officials have offended our mayor's strong Irish sense of work ethic, honesty and loyalty. In her battle for more efficient and improved city services, she faces, however, the vast army of ward committeemen, precinct captains, labor leaders and businessmen who profit from loafing and corruption and who deliver the workers and campaign funds that win elections.

If she forces the issue, the mayor is not likely to be slated for reelection. If she gives in to the pressures of the machine and labor, she will lose her reputation as a populist reformer. She may be slated and reelected on those terms, but she certainly will have a much harder time getting the extra state and federal dollars necessary to fill the widening gap between city revenues and expenditures.

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