Mayoral challenger Paul Vallas urged the City Council on Tuesday to flex its muscle and stop a $10 billion pension borrowing scheme he said has the potential to put beleaguered Chicago taxpayers in a “financial straightjacket.”

Mayor Rahm Emanuel’s administration is exploring the possibility of issuing pension fund stabilization bonds to minimize the need for another punishing round of post-election tax increases.

With dedicated funding sources now identified for all four city employee pension funds, the city would take a portion of its $28 billion in pension debt and finance it at an interest rate considerably lower than the 7-to-7.5 percent annual rate of return assumed by the four city employee pension funds.

Tuesday, Vallas called a City Hall news conference to sound the alarm amid concern that what he called “this highly speculative borrowing scheme” may be rushed through the City Council this fall.

Vallas likened the plan to “mortgaging your home and future paychecks to pay off your credit cards.” The only beneficiaries, he argued, would be Emanuel’s “Wall Street backers.”

They would benefit from yet another “pay-to-play” scheme that could line their pockets with hundreds of millions of dollars in fees, he said.

Vallas served in the administration of Mayor Richard M. Daley as revenue director, budget director and Chicago Public Schools CEO.

“Taxpayers should be outraged that yet another financial boondoggle that will dog the city for decades is being foisted on them,” Vallas said without mentioning Daley’s widely-despised parking meter deal.

“To make this borrowing work, the city will have to pledge future tax revenues to bankers, which means bondholders will take priority over Chicagoans when the city faces a future downturn. This is a form of revenue privatization, pure and simple. … The city is effectively mortgaging more and more of its financial future.”

Noting that sales tax revenues have already been pledged to bondholders, Vallas urged aldermen to hold hearings on the mayor’s plan and get an independent analysis of it, as required by the city’s privatization ordinance and the more recent “fiscal impact statement” ordinance pushed through by downtown Ald. Brendan Reilly (42nd).

Reilly was communications director for Vallas’ failed 2002 gubernatorial campaign.

“Paul Vallas set Chicago’s finances on fire when he ran the budget office and schools and asking him for advice on pensions would be like asking an arsonist to put out his own fire,” Emanuel communications director Adam Collins wrote in a statement.

Chief Financial Officer Carole Brown argued it would be irresponsible not to at least consider a plan with the potential to minimize — but not eliminate — the need for post-election tax increases.

“If you had a mortgage on your house and you knew that you could refinance that mortgage and save two percent, wouldn’t it be kind of dumb not to do that?” Brown said Tuesday.

“Tell me what the risk is. All I’m trying to do is pay less for the debt I’m already on the hook for. If we didn’t do it, he’d be standing up saying, `How could they not be trying to turn every stone to make sure that they are paying as little for the debt as they possibly could?’”

Brown emphatically denied Emanuel is entertaining the pension borrowing to avoid telling Chicago voters what taxes he plans to raise to meet a $1 billion pension obligation that will come due after the election.

“He’s instructed his financial team to … see if there’s a way to lower the cost of the $28 billion in pension debt that he inherited and addressed head-on, instead of kicking the can,” Brown said.

Emanuel has already imposed a $2 billion avalanche of tax increases, just to begin to solve Chicago’s $30 billion pension crisis.

Chicago taxpayers have endured a parade of property tax increases for police, fire and teacher pensions; two increases in the monthly tax tacked on to telephone bills; and a 29.5 percent surcharge on water and sewer bills.

More tax increases are on the way, but not until after the 2019 mayoral election.

That’s when the five-year ramp to actuarial funding will end and taxpayers will be on the hook to keep city employee pension funds on the road to 90 percent funding.

By 2023, the city’s contribution to all four funds will nearly double — from $1.2 billion this year to $2.1 billion, according to the city’s annual financial analysis.

The idea of issuing pension bonds was first raised by Michael Sacks, the CEO of Grosvenor Capital Management who serves as Emanuel’s close friend, business adviser and largest political donor.

On Tuesday, Vallas called Sacks the mayor’s “financial Svengali.”