Chicago’s pension debt topped $37 billion last year, but city leaders on a special task force convened by Mayor Brandon Johnson more than a year ago to address the problem have focused on one area: how to ensure that benefits to certain pensioners are at least as good as Social Security.
City debt rises to be seen Latest comprehensive financial report This comes despite former Mayor Lori Lightfoot earmarking a total of $2.6 billion in her last budget to accommodate growing pension costs, including upfront payments to help operate the city’s four funds.
Johnson has tied his own hands, making it harder to get the debt under control, by promising not to raise property taxes, one of the main sources of revenue the city relies on to pay down its debt, while still meeting his own $2.8 billion pension payments in this year’s budget. Supported pension reform The plan, which would benefit police pensioners, was fiercely opposed by Mayor Lightfoot because of its high cost.
The latest issues the working group is trying to address will also increase the fund’s overall liabilities.
The $37.2 billion in 2023 debt represents the difference between the city’s police, fire, labor and municipal fund assets and the cost of paying future retirees. The shortfall at the end of 2022 was $35.4 billion.
The increase in liability is not due to a lack of funds, but rather to new costs and changed assumptions about future fund performance. About half of the increase for 2023 comes from amendments to the Chicago Police Officers’ pension system that became state law late last year. The changes removed the birthdate restrictions that limited annual cost-of-living adjustments for Tier 1 pensioners. These pensioners were previously promised an annual 1.5% increase. Instead, they will get a 3% increase.
The changes increased the police pension fund’s total liability by $1.06 billion, according to city financial reports.
Jill Jaworski, the city’s chief financial officer, told the Tribune on Wednesday that the change is a good thing for transparency because the city was already paying those extra benefits piecemeal, which the city is now accounting for.
The city’s overall debt also increased by about $642 million due to lower investment return assumptions, according to the report. City officials said the increase in overall debt is a temporary blow.
Joe Ferguson, president of the Citizens League, agrees. “The fact that there’s an increase shouldn’t be confused with the fact that we’re fulfilling our original objective of increasing pension contributions,” Ferguson said. “We are, but the time to meet the ever-increasing requirements under the plan is getting shorter and shorter.”
“We can’t put it off any longer. We’re at the edge of a cliff and we need to have a realistic conversation about this,” he said. Ferguson said the city needs to seriously consider its entanglements with Chicago Public Schools, explore new revenue sources and adjust expectations for how much tax the city’s casinos will collect.
For nearly a decade, Chicago has been steadily moving forward with a pension increase plan aimed at ensuring that each fund has enough money to meet 90% of its benefit obligations by the mid-2050s. Until then, those payments are expected to continue to rise at a rate above the rate of inflation.
But currently, pension funds are far below adequately funded. The city’s smallest workers’ pension fund is only 38.5 percent funded, according to the report. Police pensions are only 22.8 percent funded, and firefighters are slightly less, at 21.6 percent. The largest fund, city employees’, is only 22.2 percent funded.
Last June, Johnson convened a broad-based working group made up of the city’s treasurer, labor leaders, city council members and state legislators to “develop a sustainable path forward.”
Committee members have had little to say about progress, and both Chairman Joworski and Comptroller Chas Rewinkel said the report, likely to be released in the next month or so, would not offer any grand plans for securing more funding in the future.
Instead, it is limited to proposed reforms that would ensure benefits for Tier 2 and Tier 3 pensioners pass a “safe harbor” test — benefits that are currently expected to fall short of what retirees would receive under Social Security.The report is limited to legislative proposals to address the issue in Springfield, which will likely be considered in the fall’s veto-free session.
“We intend to recommend an approach that ties the cap to the Social Security wage base,” Jaworski said. “We hope that all of the participants in the (task force) will be supportive of the proposal that the city is going to put forward.”
She acknowledged the changes would also increase the fund’s overall liabilities.
As for the larger challenge of paying off pension debt without straining city services, Joworski said internal discussions are ongoing about how to create efficiencies and free up more money for the city’s general budget and pensions.
“This is a very large portion of the city’s budget, and every dollar we have to put into the pension fund is a dollar we can’t currently spend on other priorities,” Jaworski said. “But we remain committed to addressing these challenges.”
She said tax increases and “hard choices” made by recent administrations have finally led to “responsible” pension policy. Joworski predicted that unfunded pension liabilities will remain “relatively flat” over the next few years and then begin to decline.
“I hope the public doesn’t view the pension finances as a crisis like they did 10 years ago,” Jaworski said. “We’re putting in $2 billion more a year than we did 10 years ago.”
She declined to discuss potential revenues or efficiencies until the budget process begins.
Three council members sit on the pensions working group: Finance Chair Councilman Pat Dowell (Ward 3), who declined to discuss the work, and Budget Chair Councilman Jason Ervin (Ward 28), who did not respond to questions.
Councilman Michael Rodriguez (D. 22), a member of the task force, was equivocal. “There’s a lot of work to be done. We’re still vetting things, people are still pitching ideas,” he said.
Labor representatives, including officials from the local rank-and-file police officers union, firefighters union and Chicago Federation of Labor, also did not respond to questions about the task force’s work.
Casino revenues, proposed as part of a plan to help pay for police and fire pension liabilities, have been slow to take hold. From January to May of this year, Bally’s temporary casino generated just $5.5 million in local tax revenue, according to the state Gaming Commission. Johnson’s 2024 budget projected casino revenues of $40 million over the course of the year.
City officials had hoped the casino could bring in $200 million a year in revenue once it was fully operational, but the construction timeline for a permanent casino has been questioned in recent months, including by Johnson himself.
Jaworski acknowledged that revenue from the temporary casino “was less than initially projected” and said the city will likely revise its revenue projections in future forecasts.
Still, “we’ve done our due diligence on our ability to complete the project and raise the financing, and we’re confident at this stage that it will proceed as planned,” Jaworski said, expressing confidence that a permanent casino will actually be built.
“I wish we had achieved at least some percentage of what we projected,” Rodriguez said. “I don’t know if we can rely on what the Lightfoot administration originally projected. I think most experts think those projections were way off the mark.”
Bally’s has repeatedly hinted at plans to move forward with a permanent casino, said Councilman Walter Barnett, whose 27th District includes the proposed site.
“As far as I know, they’re still moving forward,” Burnett said, predicting construction will begin soon. “We can’t afford not to move forward. What are we going to do with all the pension issues that are piling up?”
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