Mayor Rahm Emanuel said Thursday he will not move on a local solution to Chicago’s $30 billion pension crisis until he sees what state lawmakers are prepared to do to help the city.
Municipal finance expert Matt Fabian said this week that the “undeniably high” price Chicago was forced to pay to convert $674 million in variable-rate debt to fixed-interest rates because of its junk bond rating should “send a message” to Emanuel and the new City Council to stop waiting for Springfield to go first.
Fabian said he it’s “a bit of a pipe dream” to “expect much good is gonna come out of Springfield for the city” and Chicago would be “better served by taking matters into its own hands.”
Emanuel said the city has “never shrunk from our responsibility in the sense of meeting our obligations.” But he strongly disagreed with Fabian about the timing.
“For somebody to just say randomly, ‘Don’t look to Springfield. Don’t wait on Springfield,’ a good portion — not all — but a good portion of the problems originated in Springfield. . . . So, part of the solutions originate there as well,” the mayor said.
Emanuel pointed to the state-mandated $550 million payment due in December to shore up police and fire pension funds.
“Back in 2010, Springfield mandated . . . a [$550 million] million property tax increase. And I believe the right thing to do is to minimize or eliminate that vulnerability,” the mayor said.
“First and foremost, do the changes that are necessary for public safety. Get us also a casino that help us shore up those funds so that, in fact, we are doing what we need to do in a responsible and reasonable way to [save] public safety pensions.”
Emanuel also put the onus on the Illinois General Assembly to solve the $9.5 billion pension crisis that threatens the on-time opening of Chicago Public Schools this fall.
“If you go back to 1995 when they passed the school reform [bill], they allowed the Chicago Public Schools from 1995 to 2004 not to make a single pension payment. And half-a-billion of the $1 billion problem as it relates financially to CPS are for past years’ missing pension payments,” the mayor said.
“So, when somebody says, `You’ve got to ignore Springfield,’ well that’s the origin of the problem. And Springfield cannot continue to mandate things or make changes on the backs of Chicago taxpayers. . . . I would also say you can’t leave the dual taxation in place that asks Chicago taxpayers to pay for teachers pensions here in the city of Chicago and continue to pay for teachers’ pensions in the suburbs. That’s an inequity that has to come to an end.”
Emanuel’s long Springfield wish-list could be held up by the power struggle between House Speaker Michael Madigan (D-Chicago) and rookie Republican Gov. Bruce Rauner.
The mayor wants a publicly owned Chicago casino with all of the revenue used to shore up police and fire pensions. He wants to resurrect his 2011 proposal to broaden the sales tax to an array of services not now covered and possibly restore some of the now-expired state income tax hike.
And he needs the Legislature to lift the police and fire pension hammer hanging over Chicago taxpayers to give taxpayers more time to “ramp up” to that balloon payment with similar relief for the teachers pension fund.
Yet another bill surfaced this week in Springfield that would extend for two more years the 56 percent increase in Chicago’s telephone fee — an increase used to cover the city’s increased contribution to the Municipal Employees and Laborers pension funds while staving off a pre-election property tax hike.
If the standoff over Rauner’s demand for pro-business, anti-union reforms forces the Legislature into overtime, it’ll take a super-majority to pass the city’s ambitious wish-list.
But Emanuel said Thursday he does not believe Chicago’s desperate need for revenue and relief will take a back seat to the Madigan-Rauner power struggle.
“I believe you’re gonna start to see the action that we need,” he said.
As for the $674 million refinancing, Emanuel looked at the glass as half-full. Investor demand was strong.
“There were $6 billion-plus offers to purchase that — 10 times over the rate. That tells you people have confidence in the city of Chicago, confidence that we’re taking the right steps to right the ship financially,” he said.
Emanuel had no choice but to refinance — even though junk-bond status means paying tens of millions of dollars more.
When Moody’s Investors Service dropped Chicago’s bond rating below investment grade, the-cash-strapped city could have faced paying nearly $2.2 billion to bankers under a series of complex deals dating back to former Mayor Richard M. Daley’s tenure.
