Daley of Chicago renews his support for tax increase to aid city schools.

CHICAGO - Mayor Richard M. Daley of Chicago last week renewed his support for an increase in the statewide income tax that would provide permanent funding relief for the financially troubled Chicago public school system and would lower city property taxes.

Noelle Gaffney, a spokeswoman for Daley, said the mayor's staff is working on tax increase legislation that could be attached to existing education bills during the spring session of the Illinois General Assembly.

"The mayor supports raising the income tax to fund education and to decrease property taxes. What we have to look at now is what the ratios would be," Gaffney said.

She said that Daley's current position on an income tax increase is a modification of his previous stance, which focused primarily on property tax relief for Chicago residents, and not on city schools. Daley changed his position because he "recognizes the need for a long-term funding source" for the Chicago public school system, Gaffney said.

Gary Mack, spokesman for Illinois Gov. Jim Edgar, said yesterday that the governor has "no plans to raise taxes whatsoever." But Edgar would consider "taking a look" at a riverboat gambling plan that could provide additional revenues for Chicago schools, Mack said.

Earlier this year, the Illinois General Assembly failed to vote on legislation, proposed by Daley, that could have provided up to $71 million annually for Chicago schools if a riverboat gaming and entertainment complex were built in Chicago.

Daley made his comments on an income tax increase following last week's downgrades of the ratings on the Chicago Board of Education's general obligation debt and that of its financial advisory authority.

Last week, the ratings on the board's debt were downgraded to Ba from Baa by Moody's Investors Service, and to BBB-minus from BBB by Standard & Poor's Corp. The ratings on the debt of the Chicago School Finance Authority were lowered to Baa1 from A by Moody's, and to AA-minus from AA by Standard & Poor's. The actions of the rating agencies were based largely on the board's failure to come up with a long-term solution to ongoing financial problems.

In November, the Illinois General Assembly and the governor approved a $427 million bond plan that is intended to provide Chicago schools with financial relief until fiscal 1996.

The plan will provide the board with a total of $378 million of bond proceeds for operating purposes in fiscal 1994 and fiscal 1995. The bonds, which will be issued by the School Finance Authority, will be paid off with the authority's property tax levy and will not require an immediate tax property tax increase.

Under the plan, the board can also use revenues other than bond proceeds to eliminate a $298 million deficit in its $2.7 billion budget for fiscal 1994, which began Sept. 1. The plan also requires a property tax referendum in Chicago in two years.

About $175 million of the $378 million in bond proceeds will be used in fiscal 1994. The remaining $203 million will be used in fiscal 1995 to help eliminate a projected $349 million budget shortfall.

If a permanent source of funding for schools is not found, the board could fall off a financial "cliff" in fiscal 1996 when bond proceeds will not be available to offset a projected $300 million budget gap, according to state and school officials.

In its downgrading, Moody's warned that the bond plan could pose potential risks to the credit standing of both the city of Chicago and the state.

Gaffney said yesterday that Daley recognizes that the bond plan is a short-term solution. She also said that the mayor does not believe the downgrades will hamper the School Finance Authority's ability to float the bonds.

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