Analysis: Rahm’s pension bill revisions solve—and create—problems

SHARE Analysis: Rahm’s pension bill revisions solve—and create—problems

Mayor Rahm Emanuel has been all alone in beating the drum for a $250 million property tax increase and a 29 percent hike in employee contributions to shore up two of Chicago’s four city employee pension funds.

It got even lonelier Monday out on that political limb.

And that forced City Hall to strike all references to property taxes from legislation the mayor had hoped to ram through Springfield.  

That solves the political problem in the Legislature, but it puts Chicago aldermen squarely on the hook and will likely do little to appease an already lukewarm Wall Street.

Emanuel made the change after Gov. Pat Quinn on Monday flatly declared his opposition to the mayor’s plan to wipe out 53 percent of Chicago’s unfunded pension liability on the backs of beleaguered property owners.

The governor has promised targeted property tax breaks to soften the blow of his plan to make permanent a temporary increase in the state income tax. The last thing he wanted to do is look like a hypocrite by giving breaks with one hand and signing a bill that wallops Chicago property owners with the other.

“If they just think they are going to gouge property . . . owners, no can do. We’re not going to go that way,” Quinn said.

As if the governor’s declaration wasn’t enough of a political blow, the Wall Street rating agency that forced the issue by dropping Chicago’s bond rating four notches in eight months dealt Emanuel another setback.

“Mayor Emanuel has proposed raising $750 million in property tax revenue over a five-year period to fund the city’s share,” Moody’s Investors wrote Monday. Republicans have billed the mayor’s plan as a $750 million property tax increase, even though the city’s levy would rise by just $250 million.

Moody’s called the mayor’s plan a “step forward” in an “arduous process,” but not a panacea because of the political and legal hurdles it faces and because it “does not address” police and fire pension plans that are even closer to running out of money than the two funds Emanuel is trying to save.

Mayor Rahm Emanuel and House Speaker Michael Madigan Monday stripped out controversial language from city pension legislation that had authorized the City Council to impose a property-tax hike, putting the stalled measure back on the fast-track at the state Capitol. 

The move came just hours after Gov. Pat Quinn made clear he was not on board with Emanuel’s earlier proposal to hike property taxes as a way to solve a looming pension crisis in Chicago and after a Wall Street bond-rating agency warned that even with the property-tax language, the legislation was not a “panacea” to solve all of the city’s pension woes.

Madigan, D-Chicago, filed an amendment to Senate Bill 1922 after the House adjourned Monday without taking any action on the stalled legislation. Sources now expect the legislation to be voted upon as early as Tuesday.

“Working with legislative leaders, bill sponsors, the governor, and our partners in labor, we have addressed their concerns and can now move forward to save the retirements of nearly 60,000 city workers and retirees in Chicago,” Emanuel said in a prepared statement after the bill was changed.

“I reject the false choice between allowing the pension funds to go belly up, delivering thousands of pink slips to city workers, or enacting a massive property tax increase. This plan will secure these pension funds while ensuring the taxpayers don’t have to shoulder the burden alone,” the mayor said.

In a news conference earlier in the day on the Near West Side, Quinn repeatedly referred to Emanuel’s plan as only a “sketch” but said he would not back a plan that relied heavily on property tax hikes.

“What I saw last week wasn’t a plan, it was a sketch,” Quinn said. “It was a sketch that would relegate property owners in Chicago, families and businesses to a future of higher and higher property taxes. I don’t think that’s a good way to go.”

“They’ve got to come up with a much better, comprehensive approach to deal with this issue,” Quinn continued. “But if they think they’re just going to gouge property tax payers, no can do. We’re not gonna go that way.”

RELATED DATA: Chicago’s pension fund scorecard How Chicago’s property tax rate compares

Next year, Chicago is required by state law to make a $600 million contribution to stabilize police and fire pension funds that have now have assets to cover just 30.5 percent and 25 percent of their respective liabilities. The requirement presents a “formidable budget pressure for Chicago,” Moody’s wrote.

“If implemented, the legislation would immediately reduce the Municipal and Laborer’s plans’ unfunded actuarial accrued liability,” Moody’s wrote.

“However, we expect [that liability] would then escalate for a number of years before declining. Accrued liabilities would exceed plan assets for years to come and, if annual investment returns fall short of the assumed 7.5 percent, the risk of plan insolvency may reappear.”

And Moody’s less than enthusiastic opinion came before Emanuel revised the bill by stripping out the property tax language.

Last week, Emanuel had high hopes of speedy approval of his plan in Springfield.

On Monday, he had no choice but to dump the property-tax language from the bill entirely and hope that’s enough to win legislative approval.

“We finally have a model that brings both reform and revenue together. It was never anybody’s intention to have Springfield deal with that. That’s our responsibility. . . . And we’ll deal with our responsibility,” he said.

As for Quinn, whom the mayor has endorsed despite their difficult relationship, Emanuel said, “When we’re done with the bill, I think he sees how important getting pension reform is to the 60,000 workers who require it. . . . This would be the type of legislation that meets the goals of the city of Chicago to make sure we have resolved an issue that was hanging over the city, hanging over our retirees, hanging over our workers, hanging over our residents.”

For a week now, Emanuel has been the lonely voice for pension reform.

Aldermen 10 months away from re-election have been running for cover, with the mayor’s own City Council floor leader acknowledging that “significant work” will be needed to line up the 26 votes to pass the property tax increase.

None of the 30 union leaders who signed onto the deal have stepped forward to lead the charge for it because it also raises employee contributions by 29 percent while reducing cost-of-living increases and eliminating them altogether for four years.

Unions had also opposed removing the property tax mandate from the bill, but City Hall is convinced labor leaders won’t object to Monday’s revisions because of language that gives the state the right to withhold state funding to Chicago during any year that the city fails to make its required contribution to municipal employees or Laborers pension funds

Police, fire and teachers unions whose pension funds are also in danger of going broke are actively working against the agreement, branding it illegal and vowing never to agree anything close to those terms.

To some, Quinn’s decision to draw a line in the sand on property taxes and dangle the city’s elusive quest for a Chicago casino as a replacement was part of an elaborate political dance.

Those Machiavellian theorists believe the plan for $50 million property tax hikes for each of the next five years may have been a stalking horse for a casino all along.

But the fact is, Chicago probably needs both property tax hikes and the jackpot from a land-based casino to wipe out an $32 billion unfunded pension liability that’s eight times the city’s operating revenue and, what Moody’s calls “by far the highest” of any rated U.S. local government.

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