Plenty to like in Lightfoot’s budget, but specter of underfunded pensions isn’t going away

Mayor Lori Lightfoot’s proposed 2023 budget includes an extra $242 million to help pay for some of Chicago’s underfunded pension debt, which currently stands at $34 billion. That’s a commendable step, given the ever-present temptation to kick pension funding into the future for someone else to worry about.

But at the same time, Lightfoot, with the support of many on the City Council, decided last week to nix a $42.7 million property tax increase that could have been used to narrow the pension funding gap even more. That $34 billion isn’t going anywhere, so naturally skeptics say they wouldn’t be surprised to see a vote on a property tax increase resurrected after the Nov. 8 election.

Meanwhile, here’s some good financial news: Higher inflation in the United States has had the effect of somewhat easing the pressure of underfunded pensions, because it makes the accumulated debt worth less in real dollars. And the city has received unexpectedly good returns on investments, which also helps improve the pension funds’ balance sheets.

But the welcome easing of pension pressures might not last. It’s hard to predict if inflation will continue at its current pace. And given what the financial markets are doing now, a lot of the investment bonanza very likely will be wiped out.

All of which makes for a tough balancing act for city politicians.

Raising taxes and paying even more now toward the pension debt could hasten the day when funding is under control. On the other hand, many Chicagoans need a financial break now, as inflation — in the form of higher prices for food, gasoline and other necessities — takes a bigger chunk out of their personal budgets. Businesses, too, are still struggling to fully recover from the pandemic.

A problem for Springfield?

Lightfoot said at a Sun-Times Editorial Board meeting that she “does not anticipate” a post-election tax increase if she’s re-elected. But Chicagoans would be wise not to count on that. Whether the city’s next mayor is a second-term Lightfoot or a first-term someone else, she or he will be hard-pressed to pay down that pension debt without turning to taxpayers.

Unless, as Civic Federation President Laurence Msall suggests, the state steps in. After all, Chicago is not the only Illinois municipality facing pension funding problems.

Gov. J.B. Pritzker “took an important step three years ago when he rolled up many of the smaller police and fire pension funds investment oversight into one state board. The next step would be to take over the local police and fire pension funds and municipal pension funds and have the locals manage the current obligation,” as Msall told the Sun-Times’ Fran Spielman. “And the unfunded liability should be absorbed by the state.”

Of course, the money still has to come from somewhere. But the alternative — increasing debt that swallows up bigger and bigger chunks of revenue that ought to go to schools and parks, street improvements and affordable housing and more — is unacceptable.

Remember, too, that no matter what, residents of Chicago and Cook County have found they pay in other ways even when avoiding property tax increases.

The disastrous privatization of parking meters will cost Chicagoans over the years far more than they saved by avoiding a property tax increase. Cook County residents have experienced a laundry list of other tax increases, including the much-reviled soda tax and a sales tax increase, at least partly because county commissioners have refused for years to raise property taxes.

Overall, Lightfoot’s latest budget is worth supporting for its progressive aims. For example, the bulk of a huge tax increment financing surplus will go to Chicago Public Schools, as it should (though we’d like to see more discussion on reforming the TIF program and reducing the need to “redirect” surpluses back to schools). The budget calls for spending $200 million to combat homelessness, $31.5 million on its guaranteed income pilot program, and $15 million more on pilot programs in which mental health teams, not police officers, answer 911 calls involving people experiencing a mental health crisis.

These are worthy goals, as are others outlined by City Hall.

Chicagoans can breathe easy right now about a property tax increase. But there’s no pretending that underfunding remains a huge problem with the city’s four pension funds.

It will take hard work, but eventually, Chicago must get to the point where pension payments are a declining responsibility, not an ever-growing one.

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