Emanuel pension plan drawing fire from all sides
BY FRAN SPIELMAN City Hall Reporter September 26, 2013 6:00PM
Mayor Rham Emanuel speaks about Wells Fargo regional headquarters relocation to Chicago, on Tuesday, September 17, 2013. | Chandler West/For Sun-Times Media
Updated: October 28, 2013 7:40AM
Chicago homeowners and businesses would face annual property tax increases to solve the city’s pension crisis — but a balloon payment to shore up police and fire pensions would be put off until 2022 — under legislation backed by Mayor Rahm Emanuel that is drawing fire from all sides.
Fraternal Order of Police President Mike Shields flatly declared that the bill introduced at the close of the spring legislation session by Senate President John Cullerton (D-Chicago) stands no chance of passing because police and fire unions will work to defeat it.
In 2015, the city is required by state law to make a $600 million contribution to stabilize police and fire pension funds that now have assets to cover just 30.5 and 25 percent of their respective liabilities.
The mayor’s City Council floor leader has repeatedly suggested that the General Assembly “relieve us of these artificial dates they’ve put on us and allow us to solve the pension problem over time.” A seven-year “ramp up” was built into a tentative contract with police sergeants but overwhelmingly rejected by the rank-and-file after Shields worked to defeat it.
On Thursday, Shields vowed to torpedo the Cullerton bill that would not only postpone the balloon payment but also give the city until 2061 to get the police and fire pension funds up to a 90 percent funding level.
“I don’t think there is much of an appetite by the Illinois Legislature to grant Mayor Emanuel a pension holiday when the pension funds are so poorly funded. If the S&P 500 catches a cold, the police pension fund will catch pneumonia,” Shields said.
“Time is not on our side. We cannot ignore what the actuaries are telling the city about the necessity for more money into these funds. The answer is to follow the law, beginning in 2015, and change the actuarially required contribution which pays the true cost to operate a pension fund.”
By steadily increasing a multiplier that determines city pension payments, the Cullerton bill would mandate annual property tax increases, beginning with roughly $65 million in 2018, to shore up police and fire pensions.
But Shields is eyeing a bigger jackpot.
“We had a bill in the spring session to have a portion of the proceeds from any future casino in the city go directly into the pension funds,” he said.
Civic Federation President Laurence Msall acknowledged that Emanuel faces a “terrible set of choices” when it comes to solving the city’s $19.4 billion pension crisis. But he is equally opposed to pushing back the deadline for starting police and fire pensions on the road to financial solvency through a mix of employee concessions and new revenues.
“Given the fact that the state has yet to pass pension reform for its own funds, the Civic Federation finds it difficult to see how taking the pressure off the city’s funding requirements will generate anything more than further delay. In fact, there’s a strong probability that, if reforms are not passed and funding is not increased for the fire fund, it will run out of assets in less than 10 years,” Msall said.
“We don’t believe delay is an option. The city’s pension funds are dangerously close to a point where they may not be able to be saved. There’s going to have to be shared sacrifice with employees paying more and receiving less, and taxpayers paying more and receiving less service. Anything short of that will not save these funds without destroying Chicago’s economic base.”
Chicago Federation of Labor President Jorge Ramirez said he considers it progress that Emanuel is finally talking about putting money on the table to meet union leaders halfway.
“It’s the first time I hear them saying, ‘You’re right,’ ” said Ramirez, who is also pushing for revenues from a Chicago casino to be set aside for pensions, particularly now that Emanuel has grounded the privatization of Midway Airport.
Earlier this month, Emanuel refused to discuss new revenue until unions first agree to concessions that include increased employee contributions, raising the retirement age and forfeiting cost-of-living increases.
“If we make changes to pensions citywide — and no reforms so they actually will be there — taxpayers have to pay a 150 percent increase in their property taxes, and that’s not right. You cannot tax your way out of this,” he said.
In mid-July, Moody’s Investors ordered an unprecedented triple-drop in the city’s bond rating, citing Chicago’s “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public safety demands” and historic reluctance to raise local taxes that has continued under Emanuel.
Since taking office more than two years ago, Emanuel has held the line on property taxes while giving the Chicago Public Schools the green light to raise property taxes to the maximum allowed by law.
The mayor is expected to do the same in the 2014 budget he is scheduled to unveil in late October, well aware that annual property tax increases will soon be needed to solve the city’s pension crisis.