Four years ago when Rahm Emanuel was running for mayor, he refused to ignore the freight train headed toward Chicago: crippling pension debt that threatens Chicago’s future and the retirement security of thousands of city workers, firefighters, police officers and teachers and school employees.
Two years ago, Emanuel went a step further and in Springfield laid out an aggressive plan to cut pension benefits.
Now, one year before he faces re-election, Emanuel is going for broke: On Monday he released a proposal to shore up two of the city’s four pension funds, including the city’s largest, with a plan that includes raising property taxes and cutting benefits.
That takes guts, even if Emanuel faces no major opponent so far in his bid for re-election.
It takes guts to say out loud that taxes must be raised. It takes guts to propose cutting pension benefits when many unions are vehemently opposed. It takes guts to shout from the rooftops that the city’s pension funds will be insolvent without immediate action.
The two plans covered by this bill account for 53 percent of the city’s $19.8 billion unfunded pension liability. The municipal workers fund, which covers 31,000 active city workers and 20,000 retirees, could be insolvent as early as 2023. The laborers fund, which covers 3,000 active workers and another 3,000 retirees, could be out of money as early as 2024.
Emanuel hopes to get a bill filed in Springfield — which sets the rules for public pension systems in Illinois — as soon as this week.
We strongly support the broad contours of the proposal while knowing some details are in flux.
The plan spreads the pain: Taxpayers will shell out $250 million more in property taxes over five years, plus potentially other, smaller, yet-to-be-determined new fees or taxes, while workers will pay more toward their pensions and get less in retirement. In return, the pension systems will not go belly up, the city’s credit rating (the worst in the nation save Detroit) will surely improve, and city services likely won’t take a hit. Emanuel’s office says the city will shoulder 70 percent of the financial burden of shoring up the pensions, with employees taking on the other 30 percent.
The plan has flaws. It aims to bring both systems to only 90 percent funded rather than the gold standard of 100 percent. It looks only at property taxes as a revenue source, which aren’t based on ability to pay. The city’s options are limited — it can’t, for example, broaden the sales tax to cover more services without state action — but looking for alternative revenue could help.
Plus, the city needs every dollar it can find to prop up the grossly under-funded police and firefighter pension funds. 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.
With the law on their side, the police and fire unions seem intent on waiting it out. But if Emanuel’s proposal becomes law, the unions will be increasingly isolated, without the support they need to keep that law on the books and with a viable blueprint for reform on the books. There is only so much new revenue to go around. And the first group to the trough usually gets the best deal.
No one wants to cut pension benefits. The city tells us that retirees, who currently see their benefit grow by 75 to 100 percent over 20 years because of generous cost-of-living increases, would under this proposal see benefits grow by only 30 percent.
But they won’t be the only ones to feel the pain. Every Chicagoan, including Mayor Emanuel, will pay a price. That takes guts all around.
Now it’s up to the state Legislature to make sure this gutsy plan becomes a reality.