CHICAGO -- Chicago could face an estimated $116 million shortfall in its corporate fund budget for fiscal 1993 due to pressure from the continuing recession, Karen Danczak Lyons, the city's budget director, said yesterday.

The city's corporate, or operating, budget for the fiscal year that begins Jan. 1 will have revenues of $1.64 billion, while expenditures will total $1.76 billion, according to the Office of Budget and Management's preliminary budget estimates.

In addition to the recession, Ms. Lyons said the estimated shortfall was due to higher costs for health-care benefits and state-mandated programs.

The estimated budget gap, however, does not include the $26.8 million Chicago will lose from a temporary Illinois income tax surcharge that is scheduled to expire June 30. Also not included in the estimate is the impact of new employee contracts that will result from ongoing negotiations with city unions.

Contracts with unions that represent about 37,400 of the city's employees expired at the end of 1991. Ms. Lyons said every 1% increase in salaries would cost the city $11 million on an annualized basis

Ms. Lyons called the preliminary budget projections for fiscal 1993 "bad news, part two." Last year, the city council approved a fiscal 1992 budget that eliminated a projected $124 million shortfall in the city's $1.69 billion corporate budget through the savings from job eliminations and departmental consolidations and $84 million of new and higher taxes.

The preliminary budget report says that revenues in the current fiscal year were down $31.2 million because of a stagnant economy that has been hit by private-sector layoffs, less construction-industry employment, and a temporary downturn in economic activity caused by the underground flooding that hit the city's central business district in April.

Ms. Lyons said the flood, which resulted in the shutdown of several buildings for weeks, cost the city about $2 million in sales tax and other city revenues.

As for ways to eliminate the $116 million shortfall in the next fiscal year budget, Ms. Lyons said "everythings is on the table." She said the city first would look at revenue enhancements, user fees, and expenditure reductions, and that property taxes would be "the last thing we want to increase."

She added that 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 press office did not return phone calls on the governor's position regarding the surcharge.

While public hearings on the future budget are scheduled for next month, Mayor Richard Daley will not propose an official fiscal 1993 budget until October.

Officials from Moody's Investors Service, which rates $193 million of the city's outstanding general obligations debt A, and Standard & Poor's Corp., which has as A-minus rating for about $173 million of GO debt, have raised concerns about financial pressures from union contracts and the state income tax surcharge.

"The employee negotiations and the income tax surcharge remain the biggest question marks for the city, and as usual we are looking to [the city] to take the appropriate action to ensure budgetary balance," Paul Devine, a vice president and manager of the Great Lakes region at Moody's, said yesterday.

Jon Reichert, a vice president at Standard & Poor's, declined to comment until the agency has a chance to review the preliminary budget estimates.

Chicago sold $150 million of GO bonds, insured by AMBAC Indemnity Corp., on Wednesday.

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