Mayor Rahm Emanuel on Tuesday refused to give up the ghost on his now-overturned plan to save two of four city employee pension funds, nor would he discuss a “Plan B.”
Three days after a Circuit Court judge tossed out the reforms and shot down all his legal arguments, Emanuel insisted his “collaborative approach” with organized labor would prevail before the Illinois Supreme Court.
Never mind that the state Supreme Court already has overturned state pension reforms and is likely to do the same to Emanuel’s plan to save the Municipal Employees and Laborers Pension Funds.
Never mind that Circuit Judge Rita Novak cited the “crystal-clear direction” provided by the Illinois Supreme Court and the high court’s reading of the Illinois Constitution: Membership in a government employee pension system “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
“The only solution is working in a collaborative basis [with labor] to come up with something because the taxpayers cannot bear the burden alone,” the mayor said after returning from a European bike trip with his daughter.
“I happen to [believe] both in the substance of our argument in front of the Supreme Court, but also in the substance of the approach we had, which was a collaborative approach working with labor. I’m not gonna [say it’s a] forgone conclusion, just because one judge ruled, that it means the Supreme Court will rule that way. I think the approach will stand the test of time — meaning, employees deserve a retirement system and taxpayers also deserve to make sure that everybody’s contributing to the process and the solution.”
If Emanuel has a “Plan B” — and surely he must, with courts at both levels leaving so little “wiggle room” — he’s not prepared to talk about it. Nor is he willing to definitively warn Chicago homeowners to brace for a post-election property tax increase for city pensions.
The mayor already has offered to raise Chicago property taxes by as much as $225 million for the Chicago Public Schools. But the offer was contingent on teachers accepting the equivalent of a 7 percent pay cut and the state reimbursing CPS for “normal” pension costs.
Gov. Bruce Rauner has embraced the idea. The CTU has rejected it. That’s because teachers currently contribute just 2 percent toward their own pensions. CPS agreed to the 7 percent “pension pick-up” years ago in lieu of a pay raise.
“You assume the only answer is to raise taxes. I’ve always approached it that you have to make sure that you find every quarter under every pillow, every dime. You make the cuts, the reforms and the efficiencies,” Emanuel told reporters at an unrelated news conference at Garfield Park.
“Taxpayers are the last place you’re gonna ask. They deserve the commitment that you’re gonna do all the cutting and all the reforms and all the efficiencies that you can to squeeze every little dollar out of the system. And there’s a lot of money locked up in an inefficient system.”
In the short run, Friday’s ruling will improve Chicago’s shaky finances. Emanuel will be off the hook to find $250 million in additional revenue over five years to honor the commitment to stabilize the Municipal Employees and Laborers Pension Funds.
But in the long run, Chicago taxpayers will be forced to pay hundreds of millions of dollars more to save the two pension funds becauseemployees and retirees won’t be meeting them half way.
Moody’s Investors Service was so certain that Emanuel’sreforms would go down in flames, it dropped Chicago’s bond rating two more notches — to junk status — as soon as the Illinois Supreme Court tossed out state pension reforms in mid-May.
Standard & Poor’s has warned of a downgrade within six months if the city “fails to incorporate pension contributions in a structurally balanced manner.”
“In our view, the ruling forces the city to identify a solution that does not rely on pension reform to manage the budget demands of its pension liabilities in the long run — a particular challenge given Illinois’ state statutes governing pensions,” S&P wrote last week.
“We expect that the next six months will show how serious the city is about implementing both immediate and far-reaching plans to address the structural cracks in its budget, including creating its own pension solution.”
On Tuesday, Emanuel argued he already has followed Standard & Poor’s advice.
“Producing an agreement with 28 unions to secure 62,000 employee pensions was taking matters into our own hands,” he said.
Pressed on whether a post-election property tax hike for city pensions was inevitable, the mayor said Chicago taxpayers will have to wait until his 2016 budget is unveiled in September to know for sure.
“I sympathize with that. People want certainty. But I believe in presenting a full budget with all parts in there. And before I ask the taxpayers to put their hard-earned money on the line, I’ve got to make sure it’s part of a budget where we made sure that the government and its bureaucracy and the way it does its business is also on the line,” he said.
The deal that Emanuel painstakingly negotiated with scores of union leaders raised employee contributions by 29 percent — from 8.5 percent currently to 11 percent by 2019 — and ended compounded cost-of-living adjustments for retirees ineligible for Social Security that have been a driving force behind the city’s pension crisis.
The city started collecting the higher payments on Jan. 1.
Emanuel had argued that the Chicago pension reforms were fundamentally different from the state reforms imposed “arbitrarily.”
His corporation counsel Stephen Patton further claimed that the city’s commitment to “preserve and protect” the two funds amounted to a “massive net benefit.”