Mayor Rahm Emanuel is closing in on a deal to save the largest of Chicago’s four city employee pension funds that calls for a mix of cost cutting, employee tradeoffs and new revenue from beleaguered Chicago taxpayers.
The City Council’s Progressive Caucus last year served up a smorgasbord of revenue ideas that included a “stormwater stress tax” on big-box stores and other business giants that put pressure on the sewer system.
Sources said that is just one of several ideas now on the table to bankroll the city’s increased contribution to the Municipal Employees Pension Fund.
• A fee specifically for pensions that would be tacked on to water bills, same as Chicago’s new $9.50 a month fee for garbage collection.
• Yet another property tax increase on top of the $588 million increase approved last fall for police and fire pensions and school construction, and the $175 million increase Emanuel has offered to impose for teacher pensions.
• An increase in utility taxes and fees on electricity, natural gas and telecommunications that account for 12 percent of all corporate fund revenue or $441 million this year.
Ald. Pat O’Connor (40th), the mayor’s City Council floor leader, said Emanuel is “open to a number of revenue-generating” ideas to save the largest of Chicago’s four city employee pension funds.
“It’s not just one thing. He’s talking to City Council members now to figure out what their appetite is and what they’d be willing to do. We’re having discussions to determine what makes the most sense. We don’t have a revenue piece per se. They’re wide open to suggestions,” O’Connor said.
A top mayoral aide said the possibility of imposing a stormwater stress tax has “certainly come up in conversations.” But the Emanuel aide said it was “premature to say” whether that new levy would make the final cut.
“It’s way too early to say we’ve landed on a revenue source. We’re still working on it,” said the mayoral aide, who asked not to be named.
The Emanuel aide was more definitive about the prospects for an agreement with the 31 unions whose members draw their retirement checks from the Municipal Employees Pension Fund.
“We’re having very productive conversations. They are very eager to find a path forward,” the mayoral aide said. “We have agreements with three of the four funds. This is the last one we need to complete for the city. We’re not quite there yet, but we’re getting close to a framework similar to the one discussed with the Laborers.”
Last month, Emanuel cut a new deal to save the Laborers Pension fund to replace an agreement struck down by the Illinois Supreme Court. It relies on revenue from a 2014 telephone tax increase once earmarked to save both the Laborers and Municipal Employees pension funds.
The agreement calls for employees hired after Jan. 1, 2017, to become eligible for retirement at 65 in exchange for an 11.5 percent pension contribution.
Veteran employees hired after Jan. 1, 2011, will have a choice. They can make an 11.5 percent pension contribution in exchange for the right to retire at 65 or continue paying 8.5 percent and wait until age 67. Workers hired before 2011 and retirees would not be affected.
In exchange for those cost-saving concessions, Emanuel agreed to earmark all of the revenue from a 56 percent increase in Chicago’s telephone tax approved by the City Council in 2014 to shore up a Laborers Pension Fund with $1.3 billion in unfunded liabilities and is due to run out of money in 12 years.
The mayor has touted that deal as a “model” for other unions and acknowledged that another tax increase would be necessary.
The Laborers is not only the smallest of the city’s four pension funds, it has the “smallest of the unfunded liabilities” at 52.9 percent. The Municipal Employees Pension Fund has far more participants and assets to cover just 32.9 percent of its liabilities.
That’s why a mix of new revenues could be needed to cover an increased contribution from Chicago taxpayers that, some pension fund members say, could top $200 million a year.
“The mayor is committed to stabilizing and fully funding all four city pension funds, righting the financial situation he inherited,” Adam Collins, the mayor’s communications director, said in an emailed statement.
“Negotiations with our partners in labor to put the Municipal pension fund on a path to solvency are positive and productive,” Collins said. “But conversations are still going on, and there’s nothing final at this stage so discussing any details would be premature.”
Moody’s Investor Services has warned that the city’s bond rating could drop even deeper into junk territory without a comprehensive plan to save the “unfunded portion of its municipal pension plan, the largest of the four.”
Standard & Poor’s also has warned that Chicago faces “significant challenges” and remains “vulnerable to further rating downgrades” without a new and approved plan to save the Municipal and Laborers pension funds.
The deal with the Laborers pension fund has not been ratified by the Illinois General Assembly.