City retirees warned to expect higher health-care costs
BY FRAN SPIELMAN City Hall Reporter email@example.com January 10, 2013 2:44PM
Mayor Rahm Emanuel with 40th ward Alderman Pat O'Connor . Wednesday, May 18, 2011. | Brian Jackson~Sun-Times
Updated: February 12, 2013 2:38PM
Mayor Rahm Emanuel’s City Council floor leader warned Chicago’s 35,000 retirees on Thursday to prepare themselves for a painful but necessary reality: higher health-care contributions and reduced benefits to whittle away at an $800 million unfunded liability for Chicago taxpayers.
“Retirees have to realize that there has to be either changes in one or the other or lesser changes in both in order to address the fiscal problems that we have,” said Ald. Pat O’Connor (40th).
“Anybody [who’s] been following municipal finance across the country, particularly here in Chicago, realizes that between what we pay retirees in an earned [pension] benefit and then what we do in terms of health care — the money is just not there to continue to do it at the rate that we do it at.”
Emanuel was not prepared to lower the boom on retirees just yet. He’s apparently waiting for Friday’s explosive report from his retiree health care commission to do the dirty work.
But, the mayor didn’t shy away from the controversy, either.
Just as active city employees have been forced to choose between a $50 increase in monthly health insurance premiums and a wellness program tailor-made to control chronic diseases, Emanuel said retirees will also face the tough choices needed to control Chicago’s skyrocketing health care costs.
“Had we taken no action in the first two budgets of my tenure, health care costs today would be somewhere close to $600 million. They’re coming in at around $400 million mainly because we made a number of tough decisions,” he said.
“I said also then we were gonna look at changes as it relates to our retiree health care. Nothing was gonna be walled off from either a fresh set of eyes, a fresh set of changes or reforms. The report is coming due. They’ll make some findings available. But, I plan on also taking the steps necessary to have a fresh look at what we should do differently and make some changes that are necessary because we only have one set of taxpayers who are asked to foot that bill.”
Emanuel noted that a “10-year settlement agreement” that calls for the city to share costs with retirees is due to expire on June 30.
“After something that’s been in place for X-years doesn’t mean it stays that way. It means that, when it comes up for review, you make changes,” the mayor said.
The Chicago Sun-Times reported earlier this week that union leaders are bracing for Friday’s explosive new report on Chicago’s $800 million retiree health care crisis that could set the stage for higher contributions from 35,000 retirees, reduced benefits or a lethal mix of the two.
Sources said the commission is expected to give the mayor a series of cost-cutting options driven—not by what’s best for the city’s 35,000 retirees, but by what he believes the city can afford.
“For example, if the city wants to save $30 million, it should increase contributions of retirees. If the city wants to save $60 million, it should increase retiree contributions and provide a plan with less benefits,” said a source familiar with the report.
The pension and retiree health care crises are inextricably linked, because underfunded city pension funds now contribute 13 percent to retiree health care. Chicago taxpayers contribute 55 percent and retirees pay 32 percent.
That has union leaders concerned that Emanuel will use the threat of retiree benefit cuts and increased contributions as leverage to achieve pension reforms that include: a 10-year freeze in cost-of-living increases for retirees; a five-year increase in the retirement age; a 5 percent increase in employee contributions and a two-tiered pension system for new and old employees.
On Thursday, O’Connor was asked whether the retiree health care and pension crises can be solved without putting more revenue — in the form of higher taxes — into both.
“Before you ask the taxpayers to put more money into anything, you need to be able to tell them that you have basically like tied off the bleeding and tied off the waste that’s there and the problem that exists in terms of under-funding it annually,” he said.
“So, the idea for me would be to at least be able to do as much as we could do without turning to the taxpayers, then see if there’s a balance left that we need to turn to them on. They’re the last resort—not the first resort. If they become the first resort, then the desire to limit the current state of affairs is lessened. We can’t take any of that pressure off.”