CHICAGO -- Mayor Richard Daley of Chicago yesterday presented to the city council a $3.5 billion proposed budget for fiscal 1995 that cuts business taxes, increases the number of police officers, and calls for a $150 million general obligation bond issue mainly for infrastructure projects.

In a budget speech that emphasized programs aimed at children, crime prevention, and business development, Daley said his plan would not raise property taxes, but relies instead on continued spending cuts, privatization, increased fees, and the elimination of tax loopholes.

"This budget positions Chicago for the future -- with safer streets, more attractive neighborhoods, a better tax climate, and a more complete safety net for children and families," Daley said.

Daley had been previewing major parts of his budget for the fiscal year that begins Jan. 1 during the last two weeks.

Last week, the mayor proposed a $17 million tax cut for businesses, including a reduction in the city's so-called head tax on business. Under the plan, companies with fewer than 50 employees would be exempted from the head tax, while companies with more than 50 employees would see the monthly tax reduced to $4 from $5 per employee. Currently, only companies with 15 or fewer employees are exempted from the tax.

Daley also proposed reducing a tax on incoming phone calls aimed at businesses with 800 numbers and exempting financial exchanges and banks from the city's lease transaction tax, which is applied to such things as computer time sharing and computerized money transfers.

Also last week, the mayor proposed the addition of 475 officers to the police force, with about 275 of the positions contingent on obtaining funds from the recently passed federal crime bill. The city would have to fund the remaining 200 positions.

Paul Vallas, Chicago's budget director, said yesterday that a 2% increase in the city's amusement tax on sporting event tickets, closing a tax loophole on valet parking, and' other revenues measures would raise about $20 million a year to cover the cost of the business tax cut and the hiring of new police officers. The proposed budget also includes some minor privatization measures.

In August, Vallas had projected that the city was facing an $84 million budget shortfall next fiscal year. The shortfall, which was caused by a new community policing program and a 1993 early retirement program for employees, was eliminated by cutting departments' budget requests, Vallas said.

Chicago is expected to end its current fiscal year with a $76 million surplus, Vallas said.

In his speech, the mayor also touted a $150 million bond issue he unveiled Monday.

Walter Knorr, Chicago's comptroller, said earlier this week that the bonds would probably be issued early next spring and that the deal may be done using variable interest rates.

Knorr said the $150 million of bonds would be the first long-term GO issue sold by the city under a tax cap that took effect last January. The tax cap limits increases in property taxes to 5% or the rate of inflation, whichever is less. Under the cap, which passed the city council in March 1993, the city exempted existing GO debt, but included any future debt.

Yesterday, Knorr said the future retirement of existing GO debt as well as debt refinancings undertaken by the city in 1993 will make room for the new GO bond issue under the cap. Harvey Zachem, a vice president at Moody's Investors Service, said Daley's budget "does not appear to contain any surprises."

Jon Reichert, a director at Standard & Poor's Corp., said the budget looks "credible and conservative." Both rating agencies expect to meet with Chicago officials next month.

Chicago's GO debt is rated A by Moody's and A-minus by Standard & Poor's.

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