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New song, old tune with pension “reform” at Chicago Park District

Updated: November 13, 2013 8:21AM

The Chicago Park District recently negotiated a deal, since approved by the Illinois Legislature, to modify the district’s pensions by feathering down the costs (through COLA adjustments, increasing retirement ages) and increasing funding. The employer portion of the funding would come from property taxes or more borrowing. Mayor Rahm Emanuel reportedly hopes that this deal might provide a model or precedent for future reforms applicable to other city pension programs.

The Park District pension deal continues the deferred-funding approach embedded in the structure of the state’s and city’s pension systems — an approach that goes back to the 1990s and is in large part responsible for the looming pension catastrophe. At that time, Illinois adopted funding schedules that held down funding in the “near” years and then “ramped” up funding in more distant years, thus piling up unfunded liabilities and imposing a disproportionate share of the burden on future taxpayers.

The Park District deal increases annual pension funding dramatically between 2013 and 2019. The District’s funding burden will be held low in the near years but ramped up from $11 million in 2013 to a total of about $91 million in 2019, about eight times the funding only six years earlier.

That’s a far steeper ramp-up than the incline built into the state’s pensions schedules. Another way to say the same thing: It’s a far bigger deferral of the burden.

Why such an enormous funding deferral — and steep ramp-up — making funding (i.e. taxing) more burdensome in the future? Why seek to establish this as the pattern for reforming other Chicago pensions?

The only way to deal with an unbalanced budget is to borrow; and there are two ways to borrow. One is to issue bonds — a practice that has been well documented as problematic in a recent Chicago Tribune series. Another way is to incur obligations now — for services enjoyed now — but fund them in the future. The preeminent example of this is the incurring of pension obligations.

This timing mismatch between benefit and funding means that citizens and taxpayers today do not feel the full cost burden of the services they enjoy today. If they felt that full burden now — through current taxation — they would presumably be less willing to accept and fund them.

Mayor Emanuel did not create this fiscal mess. He inherited the city’s inflated costs and unbalanced budget structure from his predecessor, and he has struggled to deal with them. There are three ways to do that: (1) Reduce the costs, and/or (2) increase revenues; and both are unpopular. (3) Put off the problem a while longer by shifting the funding burden to the future — through more borrowing.

Emanuel will likely begin his second term in May 2015. Unless he wants a triple-dose, some new mayor would inherit the magnified mess in 2019.

Plus ca change, plus c’est la meme chose.


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