Watchdog report underscores need for mayor, labor to reach pension fix
Chicago’s pension crisis has ballooned to $27.4 billion—a six-fold increase since 2001—because of inadequate employer contributions, declining investment income and a shrinking base of active employees, a taxpayers’ watchdog group has concluded.The Civic Federation’s report on the sorry state of the Chicago area’s 10 public employee pension funds underscores the need for Mayor Rahm Emanuel and union leaders to come together on a solution and for the Illinois General Assembly to approve it when lawmakers finally get around to solving the state’s $83 billion problem.
The 10 pension funds had an average funding level of 56.2 percent in 2010, down from 88 percent in 2001. The firefighters pension fund is in the worst shape, with assets to cover just 32.4 percent of future liabilities. The laborers pension fund is in the best financial condition at 73.8 percent.
Government employees did their part, by contributing the required portion of their paychecks to their future pensions. But the government contribution fell $1.2 billion short of the $2.1 billion required to cover costs and reduce a portion of unfunded liabilities over a 30-year time-frame, the report concludes.
To reach an “actuarily sound level,” government agencies should have made contributions equal to 27.8 percent of payroll in 2010. Instead, the employer contribution was 12.6 percent.
Investment income didn’t help. It continues to reflect the “dramatic losses” of 2008, the report states. And the future outlook is bleak, thanks to a “declining ratio” of active employees to beneficiaries.
In 2010, the 10 funds had 1.23 active employees for every retiree, down from a 1.70 radio in 2001. The laborers, CTA, Park District, Forest Preserve District and Metropolitan Water Reclamation District all had more beneficiaries than active employees in 2010.
“The deteriorating state of Chicago-area pension funds threatens the retirement security of public employees and the financial viability of local governments,” said Civic Federation President Laurence Msall.
“Illinois lawmakers owe it to citizens, employees and retirees to finish what they started and fix our broken pension systems….The need for reform will continue to escalate until Illinois and local lawmakers reach consensus on a plan that offers security to public employees and affordability to taxpayers.”
Chicago Federation of Labor President Jorge Ramirez said he doesn’t need another report to tell him who is to blame for the city’s pension crisis.
“The city stopped making payments into the funds under Mayor Daley, exacerbating the problem. The only people who’ve paid into the city pension funds are the workers. They’re the only ones living up to their obligations,” Ramirez said.
“We won’t get behind any changes unless there’s some kind of understanding that these things won’t happen again. You can’t have people opting out of obligations without penalty. That can’t continue.”
Last month, Emanuel blindsided and infuriated union leaders whose collaboration he had promised to seek to solve the pension crisis.
Instead of negotiating first with union leaders in Chicago, he went to Springfield to lower the boom. The following day, he sent a letter to city employees to soften the blow of the bitter pill he’s asking them to swallow: a 10-year freeze in cost-of-living increases for retirees; a five-year increase in the retirement age; a five-percent increase in employee contributions and a two-tiered pension system for new and old employees.
Labor leaders accused the mayor of pitting hardworking employees against taxpayers—by portraying a 150 percent increase in property taxes as the only alternative to employee concessions.
In the end, Chicago pension crisis was put off until the fall along along with the state’s $83 billion pension problem.
The state stalemate stems from House Speaker Michael Madigan’s demand that Downstate and suburban schools begin footing the bill for teacher pension costs, instead of the state, as Chicago already does. Republicans have resisted that shift amid fears it would trigger massive property tax increases and program cuts by suburban and Downstate school systems.
Meanwhile, labor leaders in Chicago have resumed their dialogue with Emanuel.
“We recognize that it wasn’t Mayor Emanuel who created the problem. But he went down to Springfield with a road map on his own before we had conversations,” Ramirez said.
“We reminded him that, when he was Candidate Emanuel, he promised to sit down and talk to us.”
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