Civic Federation questions Emanuel’s utility tax plan

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The Civic Federation on Tuesday questioned whether Mayor Rahm Emanuel’s plan to slap a 29.5 percent tax on water and sewer bills will be enough to save the largest of Chicago’s four city employee pension funds.

Two days before the City Council’s Finance Committee is scheduled to vote on the mayor’s plan, Civic Federation President Laurence Msall joined the Progressive Caucus in asking for an “actuarial analysis” that proves the new tax will be enough to put the Municipal Employees Pension Fund on the road to financial health.

“This is a reasonable source for the city to use to help prop up the pensions. It buys them some time if aldermen are not willing to raise property taxes or other general taxes. But whether it will be enough remains to be seen,” Msall said.

“The Civic Federation will not be convinced until we see the full actuarial analysis that proves it will be enough to stabilize this fund going forward. The city should get that analysis and share it publicly. Chicago and state pension funds have gotten into trouble by not following the actuarially required contribution. That annual analysis is critical to evidencing whether they will need more than this new utility tax will provide.”

Even after that analysis has been provided, Msall warned, “We expect the city will have to monitor the condition of these funds every year going forward because of the inherent risks in the market and the severe financial condition of these funds.”

In a letter to Budget Director Alex Holt sent nearly a month ago, the 11-member Progressive Caucus demanded to see the “actuarial basis of the accounting used” to conclude that the utility tax will generate enough money to achieve a 90 percent funding ratio by 2057 for a pension fund with $18.6 billion in unfunded liabilities that’s due to run out of money in 2025.

Holt responded that the Emanuel administration “does not yet have the actuarial studies” for the Municipal Employees Pension Fund or for the Laborers Pension Fund, which the mayor wants to save with a 56 percent increase in the monthly tax on telephone bills for both cellphones and land lines.

With the showdown vote just 48 hours away, the Progressive Caucus on Tuesday renewed its demand for the study and questioned whether the Finance Committee vote can proceed without it.

“The Emanuel administration’s failure to provide basic actuarial information to ensure that their estimates are accurate makes it much more difficult for us to cast this vote, particularly when other analysts and experts have called these figures into question,” rookie Ald. Susan Sadlowski-Garza (10th) said in a news release.

“Similarly, we are troubled by the lack of response to our request from the Council Office on Financial Analysis so soon before the vote. This matter is too important to ram through without proper analysis.”

Ald. Leslie Hairston (5th) stressed that the Progressive Caucus is “deeply committed to fully funding” the city’s pension obligations to make certain city employees “are paid what they were promised” in union contracts.

But, she said, “We are concerned that this plan unduly burdens Chicago homeowners already struggling with other tax increases and that this plan won’t actually raise funds needed to address the liability.”

Ben Winnick, the city’s handpicked financial analyst, said he has not yet completed his report on the proposed utility tax.

Emanuel’s communications director Adam Collins issued an emailed statement in response to the actuarial concerns.

“The bottom line is that, one month ago, the Municipal pension fund was on a path to bankruptcy, and the plan being voted on by the Council will put it on a path to solvency,” Collins wrote.

Emanuel wants to phase in the utility tax over four years. The schedule calls for Chicagoans to pay 7.7 percent tax on their combined water and sewer bill next year, 8.4 percent in 2018, 8.2 percent in 2019 and 5.2 percent in 2020.

In the Southwest Side’s 23rd Ward, that would cost the average owner of a single-family home $60 a year in 2017. In the fourth year, the added annual burden would be $252.

Doing nothing is not an option. It would allow the city’s largest pension fund to go bankrupt and require paying retirees their benefits on a pay-as-you go basis. That would take an additional $900 million to $1 billion per year.

Emanuel has argued that Wall Street rating agencies want a single, reliable revenue source to put the Municipal Employees Pension Fund on solid footing and that it has to be a tax the City Council can enact on its own without relying on authorization from an Illinois General Assembly embroiled in its own marathon budget stalemate.

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