Chicago Mayor Rahm Emanuel's plan for fixing part of the nation's worst municipal pension crisis is now in the hands of state lawmakers — and it's likely just the first of many from cities across the state seeking legislative help for their employee retirement funds.
The Democratic mayor's proposal comes just months after the General Assembly finally tackled a plan — challenged in court — to deal with its own $100 billion pension problem. But Emanuel hasn't yet addressed shortfalls in the city's fire and police pension programs, a problem that nearly every large city in Illinois faces.
Chicago has the worst-funded public pension system of any major U.S. city, a distinction that could threaten its attempts to position itself as a modern transportation hub and a place for high-tech development.
Emanuel announced he had reached a deal with several municipal and laborers unions to cut in half a $19.5 billion pension debt over 40 years in accounts that cover more than 50,000 employees and retirees. The agreement would raise property taxes by $50 million a year over the next five years, ultimately bringing in $750 million over that time. It would also require higher contributions from employees and reduce the annual benefits retirees receive.
Less than a year from facing the voters for re-election, Emanuel's plan is politically risky.
"Voters did not elect me to think about my political future," Emanuel said in a statement Tuesday. "They elected me to think about Chicago's future."
He suggested the effort with the unions could be a template for solving $10 billion in police and fire shortfalls, but didn't suggest specifics, including how the city can meet a required $600 million balloon payment to police and fire funds next year.
And despite Emanuel's claim of widespread union support, a coalition of labor groups representing firefighters, police officers, teachers, nurses and other city workers called We Are One Chicago all but promised a lawsuit if lawmakers OK the plan. A similar group has filed a lawsuit over the state plan.
In Springfield, Republicans were noncommittal, saying they wanted to see the details and who would have to pay for the plan before they signed on. Democrats, who control supermajorities in both legislative chambers, already begun drafting language for the necessary bills in the House.
Other cities wrestling with their own pension shortfalls are watching.
"Chicago drives things throughout the state and it also gets the majority of funding from Springfield and Washington, D.C.," Peoria Mayor Jim Ardis said. "A healthy Chicago means more scraps for the Peorias, Rockfords, Danvilles of the state."
Rep. Elaine Nekritz, a Northbrook Democrat and House leader on pension issues, predicted lawmakers would deal with the current Emanuel plan by itself, but that when it comes to police and fire funds, Chicago and the state's other large cities will be coming to Springfield for help.
Aurora, the state's second-largest city, is among municipalities struggling with police and fire obligations, including state financial penalties to take effect in 2016 for cities that do not make sufficient contributions to those pension accounts. That amounts to an increase of more than $1 million annually for Aurora, which has reduced its operating expenses and laid off employees in recent years, Mayor Tom Weisner said.
"It's not sustainable. Without some reform, there's going to be cities that basically, I believe, will be going under," Weisner said. "I'd be hard-pressed to find a community whose leaders are not in favor of pension reform for public safety employees."
According to the Commission on Government Forecasting and Accountability, a legislative budget analyst, police and fire pension funds in cities outside Chicago have deteriorated significantly in the past two decades. Police funds, for example, were 75 percent funded in 1991, while they were only 54 percent funded — $4.4 billion short — in 2010.
The commission points out that assets in that time have tripled, but liabilities have increased even more. Springfield Mayor Michael Houston said police and fire funds were hit hard by the financial downturn of 2008 and, over the years, legislatively approved enhancements to pension benefits that did not come with money to pay for them.
"While we can lobby for changes, it's up to the state Legislature to make changes," Houston said.
If the state approves Emanuel's plan, "it has the potential to create a path for the mayor to address his police and fire pension fund, which will also need to be addressed by downstate police and fire funds," said Laurence Msall, president of the Chicago-based Civic Federation.
But he cautioned that the two systems are different. Chicago is unique for having a separate fund for municipal employees and laborers. In other cities, those jobs are covered by the Illinois Municipal Retirement Fund, which is generally in good shape in cities across the state because of stricter contribution requirements and less-generous benefits.
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