Mayor Rahm Emanuel’s proposed pension reform, which now awaits the governor’s signature or veto, is a step in the right direction. The mayor deserves credit for making two tough decisions: to reduce benefits (and costs) prospectively, and to start funding on an actuarial basis. And Illinois House Speaker Mike Madigan deserves credit for making it happen.
Could the reforms be stronger? Sure. They leave it possible for most employees to retire with full pensions as early as age 50 with 30 years of service. It would be better to switch prospectively to “defined contribution” plans and increase the retirement age. Also, the mayor will continue to “back end load” the city’s contributions — delaying full actuarial funding until 2021. And he’ll reportedly ask Springfield to defer the big increase in police and fire pension funding set to hit in 2015.
Another problem, as many have noted, is that the reforms apply only to the municipal employees and laborers, but not to the police and firemen or to the separate K-12 teachers fund. (The firemen’s deal announced April 10 deals with wages, not pensions.) The hope is that these municipal/laborers pension reforms might serve as models, or precedents, to help pressure the police, fire and school unions into going along with similar deals.
Several huge barriers remain:
First, the funding of the municipal and laborers’ pensions would require property tax increases that, in five years, would reach $250 per year on a $250,000 home. How much more would a similar deal with police and fire cost such a homeowner? What about a deal with the teachers? One step at a time seems the right approach here, but the answers to these questions are certainly relevant in deciding whether this step-by-step approach has political legs.
Second, the police, fire and teachers unions may not go along with the deal — even with improved funding. The police and fire unions think they’ve already won the improved funding they need, starting next year. So the Legislature may be asked to ram such reforms through over their objections. Good luck. Then the reforms will have to survive in court.
Third, the Chicago aldermen will have to approve all these increased funding measures — i.e., either property tax increases or some other form of new or increased tax. As hard as this may be with respect to municipal and laborers, it will get progressively harder with police, fire and teachers.
Anyone who believed that pension reform could be accomplished without shared pain was living in a dream world. The “no free lunch” principle applies in full force, particularly when taxpayers have to pay for both the current year’s lunch and a decade or more of past lunches.
When Gov. Pat Quinn was asked how Chicago should fund its pensions, he reportedly said he favors focusing on income taxes rather than property taxes. Is that so, Pat? You favor authorizing Chicago to impose its own separate income tax to fund the pension settlement? Or you want to use proceeds from the state’s income tax to fund Chicago’s pensions?
The remaining question is: If Chicago can bring itself to do what Mayor Emanuel wants — not only as to these two funds but also police, fire, and teachers — will it be sustainable? Or will the increased funding requirements trigger tax increases that provoke a mass exodus?
Nobody knows, but we have to hope the mayor can pull it off.