Telephone tax a virtual certainty to save Laborers pension fund

Mayor Rahm Emanuel is closing in on a new agreement to save the Laborers Pension fund that would require both union concessions and the second increase in Chicago’s telephone tax in two years, City Hall sources said Wednesday.

Union sources and mayoral confidantes reported progress at the negotiating table on the same day the City Council unanimously approved a $600 million general obligation bond issue backed by property taxes to bankroll equipment purchases, infrastructure projects and legal settlements.

Chief Financial Officer Carole Brown has assured aldermen and Wall Street rating agencies that the bonds will not be sold until Emanuel

outlines his alternative plan to save the Municipal Employees and Laborers pension funds.

The back-up plan was made necessary by the Illinois Supreme Court’s decision to overturn the mayor’s initial plan to raise employee contributions by 29 percent and end compounded cost-of-living adjustments for retirees ineligible for Social Security.

Even as it overturned the mayor’s plan, the court all but invited the mayor and the unions to go another round by saying that an ironclad “pension protection” clause in the Illinois Constitution “was not intended to prohibit the Legislature from providing ‘additional benefits’ and requiring additional employee contributions or other consideration in exchange.”

Ever since that mid-March ruling, Emanuel has been trying to squeeze through the window the Supreme Court cracked open, and it appears that he may be succeeding — at least with the Laborers whose pension fund is due to run out of money in 12 years.

“We met again this week. We didn’t sign off on anything, but progress was made. We’re trying to figure out a way to change someone’s COLA or give them an option to change,” said a union leader who asked to remain anonymous.

“You would change a COLA from compounded to simple in exchange for [something]. Whether that’s an amount of money or an early retirement package, we don’t know yet. It’s possible that none of those can be structured in a way that actuaries believe would be beneficial to the fund. In that case, it’s back to the drawing board.”

No matter how the deal is structured, the city has “committed to us that they understand that revenue is needed.”

A mayoral confidante, who asked to remain anonymous, said another increase in the monthly tax tacked on to Chicago telephone bills — both cell phones and land lines — is a certainty needed to save the Laborers Pension Fund.

In July, 2014, long before the Supreme Court ruling, the City Council raised the telephone tax by 56 percent to avert the need for a pre-election property tax increase to shore up the Laborers and Muncipal Employees pension funds.

The surcharge rose from $2.50 to $3.90 — $1.40 more per month or $16.80-a-year — for every landline and cell phone in Chicago. The tax applied to prepaid phones was increased from 7 to 9 percent.

The phone tax allowed Emanuel to honor a promise to then-Gov. Pat Quinn to steer clear of the property tax for at least one year in exchange for the governor’s signature on the reform bill tailor-made to save the two funds that has now been overturned.

Talks with union leaders whose members draw their retirement checks from the Municipal Employees Pension Fund are nowhere near agreement.

That’s why those unions tried to send the city a message this week by persuading a suburban lawmaker to introduce a bill that calls for the city to ramp up its contributions to the two funds, without identifying a revenue source.

The bill would give Chicago 40 years to reach a 90 percent funding level for a fund due to run out of money in eight years. State funding would be withheld if the city failed to meet that deadline.

“They’re under the impression that if they put in a bill that solves their problem in theory, then their pension problem is over and now, we have a revenue problem. Their problem is technically solved. Now, it just becomes the city’s problem,” said Ald. Pat O’Connor (40th), the mayor’s City Council floor leader.

“That’s not the way to solve this issue. We need to work together. We need to be creative to find ways to get this done. Clearly having a willing partner to try to find ways to preserve the funds and put more money in `em is something that all of us have to be striving to do. It can’t be just to have somebody dictate from Springfield that it’s got to be paid by a certain date and they pull a Pontius Pilate and they’re done.”

O’Connor was asked to rate the chances that Emanuel can find a way to make a trade with union leaders that can pass legal muster, given the wording of pension protection clause that says retirement benefits “shall not be diminished or impaired.”

“When you read an important decision like that, you’d be silly not to take them up on what they’re telling you might work. It’s incumbent on us to really try to go down that path and take the Supreme Court at their word that this might be a way to get it,” he said.

“Whether we can do it or do it in such a way that they’ll uphold it, I don’t know. But clearly, we’ve got to find some solutions soon,” possibly within weeks.

Emanuel once again refused to talk turkey Wednesday about the taxes he plans to raise to save the Municipal Employees and Laborers Pension funds.

Nor would he say whether he’s confident he can craft a concession plan that can pass legal muster.

“We are having very good and healthy discussions and when I have something to say on it, I will say something on it, but in partnership with labor,” he said.

“We’ve had very good discussions — and you know that — with the unions. We’re working through the issue to get to what I call a responsible way to fund their pensions within the confines or the strait-jacket that the court has determined.”

Chicago is legally authorized to raise its telephone tax to the highest rate charged by any municipality in the state. That means there’s room to grow without approval from the Illinois General Assembly.

More property tax increases to save the Municipal Employees and Laborers pension funds are unlikely, considering the fact that Emanuel just raised property taxes by $588 million for police and fire pensions and school construction and has promised to raise them by another $170 million for teacher pensions, whether or not the state does its part to help the nearly bankrupt Chicago Public Schools.