July 23, 2014
Mayor Rahm Emanuel’s administration is closing in on a pension deal with unions representing building trades and white-collar employees that could strengthen his hand with police and fire, City Hall sources said Thursday.
Neither the city nor the unions whose members draw their retirement checks from the Municipal and Laborers pension funds would discuss details of the framework, for fear that it could fall apart before the Illinois General Assembly has a chance to approve it.
The Chicago Teachers Union was “within hours” of a pension deal with the Chicago Board of Education, only to see it “fall apart at the last minute,” the sources said.
But sources said the talks between the Emanuel administration and unions representing building trades and white-collar employees heated up earlier this month after Moody’s Investors dropped Chicago’s bond rating another notch, citing “massive and growing unfunded pension liabilities” that “threaten the city’s fiscal solvency” without “major revenue” and budget cuts in the near term and for years to come.
The drop — from A3 to Baa1 with a negative outlook — came eight months after Moody’s cited the same concerns in ordering an unprecedented triple drop in the bond rating, which determines city borrowing costs.
“It’s a combination of the Park District [pension deal], the bond rating, the legislative calendar and [mayoral] politics. They want to get something done,” said a source familiar with the talks.
If Emanuel can seal the deal with thousands of building trades and white-collar employees, it could leave police and fire unions on the outside looking in.
“Police and fire are in a panic. They want to know what’s going on. They’re not at the table. These guys have legislation they passed that puts Chicago into a precarious spot by requiring the city to come up with a massive amount of money. They didn’t include the rest of labor when they got that balloon payment that sucked up everything,” the source said.
Next year, Chicago 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 percent and 25 percent of their respective liabilities.
Emanuel, who faces re-election in less than a year, wants the General Assembly to put off the balloon payment until 2023 to avoid raising property taxes so high that it triggers an exodus to the suburbs.
“We just are slowly but surely finally emerging out of this recession. You jam taxes up too fast or too high, you’ll throw this entire economy into a recession. It doesn’t matter what digital new hub you have, people will flee,” Emanuel told the Chicago Sun-Times earlier this month.
Police and fire unions are adamantly opposed to the delay and nowhere near a pension deal with the city. They’re biding their time until the balloon payment kicks in.
“We have no knowledge of any deal between those [municipal and laborers] parties, and any such deal would not affect fire or police,” Tom Ryan, president of the Chicago Firefighters Union Local 2, wrote in a text message to the Chicago Sun-Times.
Before talking turkey with the Fraternal Order of Police, City Hall needs to await the outcome of a runoff election for FOP president to replace ousted union president Mike Shields, who helped torpedo a deal with police sergeants that the mayor had hoped to use as a road map to solve the pension crisis.
Sources said the agreement affecting the Municipal Employees and Laborers pension funds would include major elements of the surprise deal Emanuel cut with Chicago Park District unions last fall and rushed through the Illinois General Assembly to shore up a pension fund with assets to cover just 43.4 percent of its liabilities.
It called for current employees to contribute up to 2 percent more out of their paychecks by 2019 while the Park District upped its pension contributions by $75 million during the same period. Retirees would see their 3 percent annual increases drop to as little as one-half of the rate of inflation.
“It’s similar to the Park District but not exact,” said a source familiar with the discussions.
Emanuel has adamantly refused to talk specifics about new revenues needed to meet city employees halfway for fear that, if he does, reform will never come.
“I said revenue and reform and that’s exactly what we did at the Park District. And every worker at the Park District now has a secure pension. I’ve already said revenue is part of the solution. I already met ’em halfway. The other half is to come forward with the reforms,” Emanuel said in the Sun-Times interview.
That’s the same position the mayor’s representatives have taken in negotiations with trade unions and white-collar workers.
“They know they’re going to have to come up with capital, but they’re not saying how, and it doesn’t really matter how. Why box [Emanuel] into a few sources if he has other ideas,” said a source close to the talks.
The Municipal and Laborers pension funds have higher funding ratios than police and fire. With no mandatory retirement age, their employees work longer before drawing pension checks. And unlike police and fire, there is no free health care incentive to retire even earlier.
Contributing: Dan Mihalopoulos