CHICAGO -- Mayor Richard M. Daley of Chicago's yesterday unveiled a $1.76 billion corporate fund budget for fiscal 1993 that would eliminate a projected $89 million deficit with a proposed property tax increase and budget cuts.

The $89 million deficit in the city's corporate, or operating, budgets stems from $66 million of salary increases and $23 million of increases in state-mandated pension and welfare costs. Daley said.

To fill the gap, Daley's budget proposes a $48.7 million of cuts in all areas except the police and fire departments. The cuts include the elimination of 740 positions.

"We have to face reality. We're almost down to the bare bones," Daley said in a press conference following his budget address to the City Council. The alternative to his remedies would be cutting police and fire service, he said.

The City Council must approve or disapprove the mayor's budget before the new fiscal year begins Jan. 1, 1993, according to John Holden, a spokesman for the city's finance department.

The salary increases in the mayor's budget for the fiscal year that begins Jan. 1 apply to unionized workers, except those in the police and fire departments. Their contract negotiations are still going on.

Under a recently finalized contract, all other employees will receive a 3% annual raise retroactive to Jan. 1. However, they will pay a larger portion of their health insurance. The contract also includes two 3% raises, to take effect Jan. 1, 1993, and Jan. 1, 1994, and a 1.5% raise to take effect on Jan. 1, 1995.

Daley said the same salary increases and health-care reforms were included in the proposed police and fire budgets for planning purposes.

Karen Danczak Lyons, Chicago's budget director, said the city may have to consider a larger property tax increase if the finalized police and fire union contracts exceed the city's projections.

Contracts with unions that represent about 37,400 of the city's employees expired at the end of 1991.

Walter Knorr, the city's comptroller, said the city does not plan on issuing any bonds in fiscal 1993, other than $290 million of short-term notes for cash-flow purposes in January.

In July, Lyons released budget estimates for fiscal 1993 that showed a $116 million shortfall in the $1.76 operating budget. The projected gap was a result of recessionary pressures, higher health-care costs, and state-mandated programs. The Daley administration subsequently trimmed the shortfall through the use of revenue enhancements and budget cuts.

The city's proposed budget does not include the $26.8 million that Chicago will lose from a temporary Illinois income tax surcharge that is scheduled to expire June 30, according to Russ Carlson, the city's first deputy budget director.

Carlson said the city will join other municipalities in Illinois in a push to make the state income tax surcharge permanent.

Officials from Gov. Jim Edgar's office did not return phone calls regarding the governor's position on the surcharge.

Todd Whitestone, a managing director, at Standard & Poor's Corp., said the mayor's solution to balancing the city's budget was reasonable.

"They are making some hard choices in Chicago," Whitestone said, referring to the mayor's proposed budget. "Chicago has done a good job in keeping its budget in balance. Hopefully, [these actions] will help them keep their record intact."

Harvey Zachem, assistant vice president of the Great Lakes region at Moody's Investors Service, said the rating agency has not completed its evaluation of the mayor's budget.

Moody's raters $193 million of the city's outstanding unenhanced general obligation debt A. Standard & Poor's rates $173 million of the city's unenhanced GO debt A-minus.

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