Two months after the Illinois Supreme Court struck down his plan to save two of four city employee pension funds, Mayor Rahm Emanuel agreed Monday to save the smaller of the two funds with a mix of union concessions and revenue generated by a telephone tax increase once earmarked for both funds.
To squeeze through a legal window the Supreme Court cracked open, the agreement with Laborers Locals 1001 and 1092 calls for employees hired on or after Jan. 1, 2017, to become eligible for retirement at 65 in exchange for an 11.5 percent pension contribution.
“They haven’t earned any benefit, so we can change their benefits going forward,” Budget Director Alex Holt said.
Veteran employees hired after Jan. 1, 2011, will have a choice. They can retire at 65 with an 11.5 percent pension contribution or wait until 67 with an 8.5 percent contribution, a 35 percent increase. Emanuel’s now-overturned plan called for a 29 percent increase in employee contributions. The city is still working on a trade-off for employees hired before Jan. 1, 2011.
In exchange for those cost-saving concessions, Emanuel has agreed to earmark all of the revenue from a 56 percent increase in Chicago’s telephone tax approved by the City Council in 2014 to shore up a Laborers Pension Fund with $1.3 billion in unfunded liabilities due to run out of money in 12 years.
The city’s payments to the fund will increase by “no less than 30 percent a year for the next five years,” under the agreement.
The $40 million a year generated by the $3.90 a month surcharge applies to both land lines and cellphones and was supposed to be used to cover the city’s first-year contribution to both the Laborers and Municipal Employees Pension Funds.
Now, the city will be forced to find another funding source to save a Municipal Employees Pension Fund with $9.8 billion in unfunded liabilities due to run out of money in just eight years. Sources said a second telephone tax increase in two years is a possibility.
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 last 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.
“It’s always entertaining and annoying to watch them do this shell game playing off one fund against another. That’s not the way to get this resolved. It generates distrust and animosity,” said Clint Krislov, an attorney representing participants in both pension funds.
Mike Rendina, senior adviser to the mayor, said Emanuel is “committed to finding a sustainable path forward for both” pension funds.
“I don’t think we’re trying to jam anything down anybody’s throat. We’ve touched base with most of the unions [in the Municipal Employees pension fund] and had substantive conversations with the bigger ones. Everyone is staying open to this construct. We’re not trying to jam anyone. We’re not taking a bill to Springfield. We’re showing everyone that we’re serious,” Rendina said.
The backup 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 Supreme 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 he has now succeeded — at least with the Laborers.
Joe Healy, business manager for Laborers Local 1092, said he is confident the new agreement will pass legal muster despite the Illinois Constitution’s ironclad pension protection clause that says pension benefits “may not be diminished or impaired.”
“It’s legal because it doesn’t change any current employee benefits if they don’t want them to be changed,” Healy said.
“For people in physically demanding jobs like most of our members are, it becomes an almost impossible task for someone to dig water mains and clear alleys of garbage and debris until they’re 67. This is an opportunity to lower their retirement age in exchange for slightly higher contribution rates.”
As for the trade-off for pre-2011 hires, Healy said, “We’ve looked into everything from early retirement packages to a partial payout in exchange for changing their C.O.L.A. from compounded to simple.”
But more senior employees will “retain the ability to keep what they currently have and not have any changes to their benefit structure . . . It’ll be their choice,” Healy said.
Emanuel’s original plan to meet the city’s increased obligations to the two funds called for raising property taxes by $250 million over five years.
He substituted a 56 percent increase in the telephone tax only after then-Gov. Pat Quinn balked at a pre-election property tax increase.
Now that all of the money is being used to shore up a Laborers Pension fund, Holt was asked where the money would come from to save the larger of the two funds.
“We do not need an increase in the telephone tax to pay for the ramp for Laborers. If we can get Muni on a sustainable path that doesn’t put the full burden on taxpayers, revenue has to be on the table. What that is at this point, we don’t know. Everything is on the table,” she said.
Civic Federation President Laurence Msall said the mayor’s piecemeal plan is “better than not doing anything.” But he noted that the Laborers pension fund has the “smallest of the unfunded liabilities” of the city’s four pension funds.
“Laborers is at 52.9 percent. Municipal is at 32.9 percent. Police is 26 percent. Fire 23 percent. All of these funds are in desperate financial shape. A comprehensive solution for all of them is needed. This could be the start of some improvements. But until we see the actuarial analysis, we won’t know how much,” Msall said.
“This plan would have the city going on a 40-year plan to get to 90 percent with a five-year ramp or phase-in,” he said. “That’s an improvement over the current structure, but not what actuaries recommend for solving a pension crisis. They recommend 100 percent funding within 30 years or less.”