CHICAGO -- Mayor Richard Daley of Chicago yesterday proposed a $3.24 billion all-funds budget that would eliminate an estimated $124 million shortfall through spending cuts and revenue increases for fiscal 1992, which begins Jan. 1.

In a budget address to the city council, the mayor recommended reducing the city's work force by 1,474 jobs, to 37,399, and curtailing duplication and inefficiency by eliminating or merging some city departments -- moves he estimated would save the city $46 million.

The mayor also proposed $84 million of revenue enhancements, including a new 5% tax on out-of-state telephone calls that is expected to raise $20 million a year. He also recommended rescinding a $25 million property tax abatement enacted in 1990.

Mayor Daley decried the need to make layoffs and raise taxes, but he said hard fiscal times gave him no choice.

"I realize this is not a happy budget," he said. "But I believe that the fiscal burdens we face also represent an opportunity to make government work better."

The mayor's proposal does not anticipate any pay raises for unionized city employees, whose contracts expire at the end of this year. Those workers represent 87% of the city's $1.1 billion annual payroll.

Mayor Daley said upcoming contract negotiations with employee unions would focus on cutting health-benefit costs, which, at $6,000 per worker annually, he claimed are twice that of the private sector.

He also blamed the state for the need to raise taxes, saying the actions were necessary because of the city's loss of $41 million due to a change in how the 20% state income tax surcharge is distributed. The Illinois General Assembly in July diverted half of local governments' former share of the surcharge to the state's general fund.

Mayor Daley bemoaned the need to rely on property taxes to fund local government and said he favors reforming the state tax code.

"I'm going on record in favor of substituting, dollar-for-dollar, revenues from the state income tax for local property taxes," he said. "We have to get away from the reliance on the property tax as the primary source of funding for local governments."

He also said he would oppose a move by state Sen. Walter Dudycz, R-Chicago, to have the state legislature extend a cap on annual property tax collections of 5% or the rate of inflation, whichever is less, to Chicago. The cap currently is in place on most governments in five suburban Chicago counties.

The proposed fiscal 1992 corporate, or operating, fund budget is $1.69 billion, a decrease from the current corporate fund budget of $1.7 billion, according to the proposed spending plan.

The budget calls for the issuing $287.4 million of tax anticipation notes and $35 million of equipment notes in fiscal 1992. According to John Holden, a spokesman for the city's revenue department, no new long-term general obligation or revenue debt was included in the proposed budget. However, he pointed out that the city would be evaluating potential refinancings of existing debt throughout the year.

Chicago's general obligation debt is rated A-minus by Standard & Poor's Corp., and A by Moody's Investors Service.

Chicago Bureau Chief Karen Pierog contributed to this article.

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