Chicago -- To Mayor Richard M. Daley, management is a key reason why Chicago has not succumbed to the tide of crumbling big city credits.

As cities such as New York and Philadelphia grapple with enormous gaps between revenues and expenditures, Chicago expects a balanced budget for fiscal 1991, which ends Dec. 31.

"My management has been stable the last two yaers," the mayor said in an interview. "We're not only saving money by cutting overtime and [by] privalization, we're also cutting costs down."

Mayor Daley began his first full four-year term in May, after emerging the victor in an April 2 general election that was low-key compared to the divisitive campaigns of the 1980s. He served a two-year term after winning an April 1989 special election called after the death of Harold Washington, the city's first black mayor, in November 1987.

With a substantial majority of Chicago's 50 aldermen behind Mayor Daley, the city's days of guerilla warfare between the majority of white aldermen against Mayor Washington and his supporters are long gone. While Mayor Daley's initiatives are still challenged by some council members, he has the votes to get them passed. The city, once dubbed "Beirut on the Lake" by the Wall Street Journal, now tries to adhere to the administration's motto of choice -- "Chicago works together."

Still, the continued strength of Chicago's finances is uncertain.

As Paul Devine, vice president and manager of the Great Lakes Region at Moody's Investors Service, pointed out, "Anytime you have a large city like Chicago, you always have a magnitude of service demands and not a lot of resources. You're always walking a fine line."

The balancing act for the city's $3.18 billin fiscal 1991 budget is contigent on the Illinois General Assembly extending or making permanent a 20% income tax surcharge, which is due to expire at the end of this month. Without surcharge revenues for the last six months of the year, the city will face a $45 million deficit -- a possibility watched by both Moody's and Standard & Poor's Corp.

Top aides to the mayor said it was likely the surcharge will be extended in some form. But just in case, Mayor Daley and his team of managers have a plan.

"I know what I'm going to do, but I'm not going release it," the mayor said. "I have confidence that we can handle it."

Added Edward Bedore, the city's chief financial officer, "We are not just sitting back and waiting. "We've slowed down the hiring process."

The city's share of revenues from the temporary increase of 0.5% in the state's 2.5% personal income tax and 0.8% in its 4% corporation income tax, passed by the Legislature in 1989, helped the mayor tame a $120 million budget deficit when he took office in 1989.

Even if the surcharge is extended by the time the General Assembly adjourns its spring session on June 30, a question remains as to whether the distribution of revenues will remain the same.

For example, the state Senate last month passed a bill that would make the surcharge permanent, but would also defer revenue payments to local governments for 18 months. Those deferred revenues would be used to ease the state's financial problems, which led to about $7 billion of Illinois debt being placed on Standard & Poor's Credit Watch with negative implications earlier this year.

After 18 months, the Senate's plan -- supported by Gov. Jim Edgar -- would return only about half of the surcharge revenues local governments had been getting. For Chicago, that would mean splitting its expected share of $90 million a year in half.

The city could also bear some of the brunt of the hundreds of millions of dollars of cuts the governor has proposed in his budget for fiscal 1992, which begins July 1. Those cuts, if passed, could mean a loss of $570 million in social services to city residents -- which would put increased pressure on city services.

Mayor Daley said Gov. Edgar would have to live with the consequences of any cuts that are approved, pointing out that the governors "has to take responsibility and blame for it."

The mayor's finance staff, meanwhile, is telling the rating agencies to wait until the final state budget is in place before assessing its effect on Chicago. "What you set today won't hold for tomorrow," Mr. Bedore said.

Another uncertainty for the city is the upcoming negotiations with its union employees, who make up 87% of the city's $1.1 billion payroll. With the three-year pacts expiring at the end of the year, the mayor said whatever is negotiated this fall could have an impact on the next three city budgets.

Mr. Bedore said the mayor's initiative to privatize some city services would likely come up during the contract talks. So far, the mayor has turned over services such as towing and janitorial help to private companies, and has three or four other areas in mind for privatization, Mr. Bedore added.

The positive news is that the recession that hammered many big city credits has only nicked Chicago. Mr. Bedore said the city has experienced a "slight decrease" in sales and income tax revenues. However, conservative revenue estimates along with an unbudgeted increase in city utility tax revenues has kept the budget in balance, he noted.

And proposed big tax-exempt bond-financed projects -- such as a $987 million expanision of the McCormick Place convention center on the city's near-south lake front, a $600 million trolley system for the downtown, and a proposed $5 billion airport on the southeast side -- were cited as future economic boosters by city officials.

Another possible big-ticket item could come out of ongoing franchise negotiations with Commonwealth Edison, the city's electric supplier. Edison's franchise expired last December, and the city has used the possible acquisition of its facilities as a bargaining chip. An advisory referendum on the April 2 ballot advocating the acquisition of Edison's facilities by the city was passed by voters. But the cost, estimated at $2 billion, and tax law complications led the mayor to say the acquisition was only one option the city was considering.

In the bond area, the Daley administration has taken a conservative stance. The actual issuance of the $305 million of general obligation debt called for in the city's 1990-94 capital spending plan will depend on the final actions of the General Assembly, according to Walter Knorr, the city comptroller.

As of Dec. 31, the city had $771 million of outstanding GO debt, $376 million of outstanding GO tender notes, $85 million of motor fuel tax revenues bonds, and $10 million of tax increment and special service area bonds. In its enterprise funds, which includes outstanding bonds issued for O'Hare International Airport, water system projects, and the Chicago Skyway, the city had $2.5 billion of debt outstanding.

In addition to the clout the Daley name carries in Chicago, Mayor Daley also inherited the legacy of the 1963 Chicago Skyway bond default from his father, the late Mayor Richard J. Daley. With $101 million in principal due to bond holders in 1995, the city is currently in court defending its use of toll monies from the 7.8 mile road for repairs against bondholders who want the city to put the money into a sinking fund.

The mayor said one option for the city would be having the state or federal government take over the beleaguered roadway that connects southeast Chicago with northwest Indiana. That option is currently being studied by an Illinois-Indiana transportation commission.

The city's GO debt is rated A-minus by Standard & Poor's and A by Moody's. Mr. Knorr said improving those ratings may again depend on what happens over the next week and a half in the state capital. In a credit report earlier this year. Standard & Poor's pointed out that even without the income tax surcharge, the agency believed the city "will be able to contain expenditures and draw on available balances to a degree sufficient to remain in the 'A' category."

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