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Chicago Schools Seek State Tax Hike

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Chicago--City school officials here are lobbying state legislators for an increase in both state income taxes and local property taxes to erase a projected $202.5-million deficit for the 1982-83 school year.

The deficit is the largest the school system has faced since it ran out of money in 1979 and the legislature created the Chicago School Finance Authority to sell bonds to keep schools open.

School officials have warned that without new revenue, they would have to increase the average class size by five pupils, shorten the school year by four days, and cut employee compensation by up to 25 percent to balance their budget.

Privately, they concede that the schools would not open because employees' unions would never permit such cuts.

Under state law, schools cannot open until the Finance Authority has certified that expected revenues will cover planned spending.

The deficit was disclosed last month when the board of education submitted a three-year financial plan to the Finance Authority. The new estimate does not include pay raises for the 40,000 employees of the school system, which is the third largest in the country. Every 1-percent increase in salaries would add an extra $8.5 million to the shortfall.

The Chicago Teachers Union already has served notice that it will push for raises. "We did freeze salaries last year, with the understanding we would be given serious consideration for a salary increase this year," said the union's president, Robert M. Healey. "The teachers expect that."

Illinois's faltering economy has thrown the state budget into deficit, and Gov. James R. Thompson has proposed increasing both the personal and corporate income-tax rates to stave off massive cutbacks next year in state services and aid to school districts.

He would raise the personal rate from the current 2.5 percent to 4 percent and the corporate rate from 4 percent to 5.6 percent. That action, along with a boost in liquor taxes, could generate enough money to bring the Chicago school deficit down to $100 million.

In an attempt to win legislative converts, Governor Thompson has agreed to make the income-tax hikes a four-year surcharge. But he still has not lined up the necessary votes and probably will not until the closing hours of the legislative session, which ends on June 30.

Dismissing a local tax referendum as a no-win proposition, Chicago school officials also have asked the legislature to restore 50 cents it took away from the maximum property-tax rate for the schools' education fund when the Finance Authority was created. Legislators reduced the ceiling on the board's education-fund tax rate to offset new taxes needed to pay off the Finance Authority's bonds.

Restoration of the 50 cents would generate about $95 million for the 1983-84 school year.

The city's new Mayor, Harold Washington, who inherited hefty deficits in various city agencies, has vacillated on the issue. But some of his closest advisers, including a school-board member who also is a vice president of one of the city's largest banks, support the increase.

Mayoral Support Crucial

Mayor Washington's support is crucial for passage, but it remains to be seen whether the new mayor can round up enough Chicago votes for the unpopular measure. Suburban and downstate legislators probably would go along with the increase if Chicagoans back it.

The school board has not resolved its money problems because it has built new costs into its budget without winning a permanent source of revenue to pay for them, officials concede.

It has repeatedly sought a property-tax increase, with the backing of the Finance Authority, but was thwarted by former Mayor Jane Byrne.

After making substantial budget cuts in the wake of a financial crisis in 1979, the board balanced its last two budgets with one-time revenues, including a speed-up in the collection of outstanding property taxes and a city transfer of federal Community Development Block Grants money. The federal government recently ruled that the transfer, arranged by Ms. Byrne, was improper, leaving to Mayor Washington the task of finding replacement money or having next year's grant cut.

When the school board submitted its 1982-83 budget last September, it forecast a deficit of $91.5 million for 1983-84. The deficit doubled largely because of revenue shortfalls tied to the state's sagging economy.

The new elements in the deficit situation include:

A $7.8-million loss in state aid last January.

The need to replace $7.3 million taken from the board's $20-million cash cushion to pay for programs that would have been slashed by the January cut.

A $15.7-million deduction in revenue from the special corporate income tax that replaced the outlawed corporate personal property tax.

A projected additional loss of $51.9 million in state aid under Governor Thompson's budget, assuming no tax increase.

Scrapping a $14.3 million state-aid increase school officials had counted on in rosier economic times.

An extra $10 million for desegregation programs, raising the total to $67 million.

Potential Cuts Listed

In its three-year financial plan, the school board listed potential cuts in its $1.3-billion budget if no new revenue is won. They include:

Increasing by five pupils the contractual limit on class size, which ranges from 25 to 32, for a savings of $42.8 million.

Cutting salaries across the board by 5 percent, saving $37.5 million.

Dropping the practice adopted two years ago of paying the employees' share of pension contributions, which is 7 percent of their salaries, for a savings of $52 million.

Requiring employees to pay half of their medical- and dental-insurance premiums, saving $30 million.

Reducing the school year by four days, saving $15.2 million.

Eliminating longevity pay raises, saving $9.3 million.

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