No matter who wins the April 2 runoff election, the financial challenges confronting Chicago’s next mayor will be daunting.
The four city employee pensions funds have assets to cover less than 50 percent of liabilities; the combined total of those liabilities is just shy of $28 billion.
Pension fund contributions will rise by $270 million immediately and nearly double over the next five years as the ramp to actuarial funding ends and the road to 90 percent funding begins.
The corporate fund that serves as the city’s operating checkbook has budget gaps of $251.7 million next year and $362.2 million in 2021. And the mountain of debt heaped on Chicago taxpayers continues to climb.
Now, the Civic Federation is releasing a report outlining Chicago’s three major financial challenges — pensions, debt and structural deficit — that includes “options and recommendations” to stabilize the crisis.
The recommendations include: converting the city clerk and treasurer’s office from elective to appointed offices; consolidating the four pension funds; conducting a “cost of services study” to explore more efficient ways to provide city services; eliminating “duty availability” pay for public safety employees; reducing minimum manning requirements for Chicago firefighters and discontinuing other perks and specialty pay that drive up the cost of police and fire contracts.
The Civic Federation also raised the prospect of reducing the size of the City Council and reforming the treasured aldermanic menu program, which gives each of the city’s 50 aldermen $1.32 million-a-year to spend on infrastructure projects of their own choosing and developing a comprehensive land use plan.
And the report analyzes the pros and cons of a host of new revenue options without advocating for any of them.
Those options include: a city income tax; a commuter tax on suburbanites who work in Chicago; a transaction tax on LaSalle Street exchanges; taxing recreational marijuana; new gaming taxes and a Chicago casino; implementing a “supplemental ride-share fee” based on congestion and public transit availability; restoring the employee head tax that Mayor Rahm Emanuel proudly eliminated; and wiping out the income tax exemption for retirement income.
The report cautions the new mayor and City Council not to rely on “inconsistent or one-time revenue sources.” Nor does the report recommend “issuing massive amounts of debt.”
It also warns against “overly securitizing revenue” — like when Emanuel’s administration sales tax securitization bonds, approved by the City Council in October 2017. It placed $661 million in state sales tax revenue into a “special purpose corporation” which was used to refinance $3 billion in existing debt and possibly future debt for infrastructure projects.
That approach dramatically reduced borrowing costs — because bondholders get paid first. Only after debt service is paid will sales tax revenues start flowing back to the city.
The City Council has yet to act on Emanuel’s controversial plan to set up the structure to issue $10 billion in pension obligation bonds to save beleaguered Chicago taxpayers “as much as $200 million” in his successor’s first budget.
“Because of the magnitude of the financial problems facing the city, it is worth considering a plethora of options,” Civic Federation President Laurence Msall was quoted as saying in a press release.
“However, the Civic Federation urges the next leaders of Chicago to approach many of the proposed solutions with caution. It is important to have a good `Plan A.’ But, sound financial planning requires a strong back-up strategy for when `Plan A’ doesn’t materialize as hoped or expected.”
Msall noted that both the city and state “descended into their worst-in-the-nation financial condition” during what he called “one of the longest economic expansions in U.S. history.”
“Neither government is currently prepared to weather the storm in the event of a recession, particularly if it is deep or long-lasting,” Msall was quoted as saying.
The Civic Federation laid out similar options for Emanuel shortly after he took office, only to have nearly all of the suggestions ignored as politically toxic.
Inspector General Joe Ferguson got the same cold shoulder when he suggested revenue options and ways to dramatically alter union contracts.