By Fiona Ortiz
CHICAGO (Reuters) - As Chicago Mayor Rahm Emanuel struggles to get re-elected, one of his biggest problems will be how to deal with Illinois' new Republican governor Bruce Rauner, whose proposed budget would slash hundreds of millions of dollars of state funding for the city.
The strains have led to a deterioration in the relationship between the two politicians, referred to in Illinois political circles as "Rahm-Rauner." Though Emanuel is a Democrat and Rauner a Republican, the two have been close friends and even political allies, with Emanuel appointing Rauner as chairman of the city's tourism agency soon after he became mayor in 2011.
As governor, though, Rauner has riled Chicago voters with strong anti-union rhetoric, support for charter schools and proposed cutbacks to social spending.
These are issues Emanuel's opponent in the run-off election, county commissioner Jesus "Chuy" Garcia, has attacked Emanuel on. And the mayor is showing signs of distancing himself from Rauner in an attempt to deflect any criticism of his connections to the governor.
On Tuesday, Emanuel only got about 45 percent of the vote, less than the 50 percent he needed to avoid a run-off, and Garcia received around 34 percent. Three other candidates shared another 21 percent.
Illinois Senate President John Cullerton, also a Democrat, last week got an early glimpse into the growing tensions during a private conversation in which Emanuel asked him to help block Rauner's plan to cut state payments to Chicago and other local governments.
"He wants me to make sure it doesn't happen," Cullerton told Reuters.
The turnabout is jarring for the group of business leaders and political insiders in the imposing skyscrapers of Chicago's downtown, many of whom have seen Emanuel and Rauner joust in public while falling back on a longstanding relationship in private. They first worked together in 2001, when Emanuel as an investment banker helped with a transaction in which Rauner's private equity firm ultimately doubled its money.
Politics dictates that Emanuel must criticize Rauner, but the two still share an agenda of shaking up the state's politics to strengthen government finances and improve the business environment, said Chris Robling, a Republican strategist and former commissioner of elections for the City of Chicago.
"Rahm has to say these (critical) things about Rauner. This is a perfect foil for him," Robling said. "Rahm knows without someone applying discipline in Springfield (the state capital), which will eventually work its way back to straightening out the city of Chicago, the city will be at risk."
Years of overspending, and underfunding of public pensions, mean Illinois has the worst credit ratings of any U.S. state and spends $2 billion a year just to service its debt. Chicago faces a potential $1 billion budget deficit next year, and Emanuel has not offered a plan to pay a $550 million state-mandated pension payment that comes due next year.
LOOKING FOR COMMON GROUND
For Emanuel, the troubled finances in Illinois and Chicago are as big a political threat as other hot-button issues that have captured public attention in the mayoral election campaign to date: spikes in violent crime, school closures, and his reliance on traffic cameras that catch drivers speeding and running red lights.
No matter how much Emanuel may vilify Rauner about budget cuts that will hit the city, he will need to convince voters he has the best chance of working with Rauner on the state budget, pension reform, and other issues affecting the city, said a longtime Democratic party leader in Chicago.
"Rahm has to get something done for the city, and Rauner's budget will be a big part of that," said the Democratic leader, who declined to be named because Emanuel had not given authorization for him to comment.
Emanuel inherited a fiscal mess when he won the mayoralty in 2011, and like Rauner is now doing, Emanuel billed himself as a tough personality willing to impose unpopular measures. Emanuel laid off city workers, privatized services, closed 50 public schools and rolled out the politically unpopular cameras.
Emanuel's office did not comment for this story. A Rauner spokeswoman said by email: "While (Rauner) and Mayor Emanuel do not see eye to eye on every issue, they share a common passion for rebuilding a great state and a great city and will work together to accomplish those goals."
The state's labor unions are critical of Rauner, while tending to view Emanuel with skepticism, and assume the two politicians are working hand in hand. But they see limits to what the two can accomplish, particularly since both city and state efforts at pension reform so far have been blocked by union-backed court challenges.
"If there are neo-liberals in Chicago who think Rahm and Rauner can get together and change the world, they are sadly mistaken," said a union leader and Democratic political operative who declined to be named because the union concerned has not yet endorsed a candidate in the election.
Still, believers in the potential power of Rahm-Rauner remain optimistic. A prominent Chicago lawyer who has worked with both men said, "They are from different parties so they can't sing 'Kumbaya' in public if they want to maintain respect. But privately they will work together."
(Reporting by Fiona Ortiz; Editing by David Greising and Martin Howell)