Rahm Emanuel: Can he handle Chicago's 'profound' financial crisis?

Chicago woke up Monday morning to something it has not seen in 22 years: a new mayor.

Rahm Emanuel ­ the former chief of staff to President Obama, a US Congressman, and a longtime Democratic Party strategist and fundraiser ­ became Chicago’s 55th mayor late Monday morning, succeeding incumbent Richard M. Daley.

The event was an all-star gala, bringing together politicos from Washington to Springfield. The new mayor’s most pressing challenge: Chicago’s budget deficit is estimated at $587 million, and the city owes nearly $600 million in pension obligations. The hole is expected to grow next year – a situation the new administration cannot ignore.

In past years, the Daley administration tried to shore up funds through tapping reserves, issuing furlough days for city workers, and using controversial privatization measures, such as selling the city’s 36,000 parking meters to Morgan Stanley for $1.15 billion in 2008, a deal that not only backfired on Mr. Daley politically, but proved only a temporary relief, as spending against the deal left the city with $346 million.

Mr. Emanuel’s financial challenges are exacerbated by “the fact that the city council and the past administration did not reduce the spending earlier,” says Laurence Msall, president of the Civic Federation, a Chicago-based nonpartisan advocacy group that analyzes government budgets.

“But the deficit was not created in one year, so it’s unlikely [Emanuel] will be able to eliminate the entire deficit in one year. But he can put the city on a path of progress and stabilization, and reverse the trend over a matter of years,” Mr. Msall says.

In his inaugural address, Emanuel called the city’s financial crisis “profound.”

“We cannot ignore these problems one day longer. It’s not just a matter of doing more with less. We must look at every aspect of city government and ask the basic questions: Do we need it? Is it worth it? Can we afford it? Is there a better deal?” he challenged Chicagoans.

During the five-month campaign, Emanuel proposed a spending freeze he says will shore up $75 million from Daley’s last budget. He also announced plans to cut city council committees from 19 to 16, to save about $470,000. Other possible changes include combining city departments to streamline costs and changing the way the city collects garbage and recycling, by inviting private companies to competitively bid against city departments. Last month, Emanuel announced the formation of a special council to examine the city’s budget and find money-saving ways to restructure city government.

Layoffs loom for Chicago employees

Although Emanuel has not yet how many – if any – city employees will be laid off, current spending allocations make layoffs appear inevitable. The Civic Federation reports that over 80 percent of Chicago’s budget goes to wages and benefits of its employees.

Emanuel hinted that he will face difficulties with the unions representing city workers, but stressed that his issues with unions should be perceived as separate from the collective bargaining battles taking place in neighboring states.

“I reject how leaders in Wisconsin and Ohio are exploiting their fiscal crisis to achieve a political goal. That course is not the right course for Chicago’s future,” he said. “However … we will do no favors to our city employees or our taxpayers if we let outdated rules and outmoded practices make important government services too costly to deliver.”

Msall says the city will “have to reduce payroll to effectively reduce or eliminate” the deficit. “Certainly, the new mayor is going to need the cooperation of the entire workforce, including those represented by organized labor,” he says.

Emanuel’s inaugural bash

The inauguration, at the Pritzker Pavilion in Millennium Park, capped a weekend of activities that included concerts, family sporting events, and comedy and dance performances on the city’s front lawn, along the Lake Michigan lakefront.

Monday’s main event was attended by a host of city, state, county and federal lawmakers, past and present. The crowd of dignitaries attested to both Mr. Emanuel’s pedigree at all levels of government and the stature he holds in his party.

Besides former Chicago mayors Daley and Jane Byrne, seated guests included Vice President Joe Biden, US Sens. Mark Kirk (R) and Dick Durbin (D), Illinois Gov. Pat Quinn (D), White House Chief of Staff Bill Daley, and three members of the Obama cabinet: Secretary of Transportation Ray LaHood, Secretary of Labor Hilda Solis, and Secretary of the Treasury Timothy Geithner.

By Monday afternoon, Emanuel completed his first official act as mayor, signing three executive orders dealing with transparency and ethics. New reforms include prohibiting former city administration officials from lobbying city hall for at least two years after they leave their post and banning lobbyists from making political contributions to the mayor.

Emanuel won his office with 55 percent of the vote in February, following a highly contested race including a legal battle over his residency status that ended up before the Illinois Supreme Court.