Mayor Emanuel’s pension plan headed to governor

April 8, 2014

Tony Arnold and Alex Keefe

Controversial legislation that would change the retirement benefits of some City of Chicago employees raced through the state legislature on Tuesday and is now headed for Gov. Pat Quinn's desk.

The plan, backed by Chicago Mayor Rahm Emanuel, cleared the State House of Representatives on a 73-41 vote. A few hours later, it passed through the State Senate on a 31-23 vote. Gov. Pat Quinn has not said whether he'll sign the plan, which is opposed by several powerful city workers' unions because it scales back benefits for retirees.

The debate on the House floor largely centered around what would happen to the two pension funds for city laborers and municipal workers if they continued their current benefit structure. City officials had warned lawmakers the retirement funds could run out of money to pay retirees their benefits within 10 years.

“The numbers alone would behoove us to take action and pass this bill,” said Democratic House Speaker Michael Madigan, who sponsored the bill for  Emanuel.

Of the two pensions affected, the municipal pension is currently funded at 37 percent, while the laborers’ system is funded at 55 percent.

“These plans will be out of money, insolvent, bankrupt, unable to pay any of their obligations in somewhere between 10 and 15 years,” said State Rep. Elaine Nekritz, D-Buffalo Grove.

Most of the opposition came from members of the black caucus, who represent parts of Chicago, and suburban and downstate Republicans, who warned that the legislation depends on the city council to raise property taxes.

“If  you vote for this bill, you are voting for at least $2 billion of higher property taxes over the next 10 years,” said Rep. David McSweeney, R-Cary.

An earlier version of the bill required Chicago’s city council to approve a property tax increase, but Speaker Madigan removed that language after objections from several lawmakers.

The bill’s main goal is to pump more money into the Chicago pension funds for city laborers and municipal workers, while scaling back benefits to cut costs. Under the proposal, the city would finally scratch the inadequate funding formula it has used for decades, which experts say is a big reason the city’s retirement systems are now in such dire shape.

Much of that ramped up funding would come from Emanuel’s proposal to raise Chicago property taxes by $50 million a year, ultimately netting the city $750 million more revenue over the next five years. For the owner of a $250,000 home, that would cost about $58 dollars more per year on their property tax bills, according to the mayor’s office.

Lest City Hall try to wriggle out of its pension obligations during tough budget times, the bill also gives pension funds the power to sue the city if it fails to pay up. By 2018, the pension funds would also be able to garnish all state grant money headed for the Chicago if the city fails to meet its obligations.

City workers, meanwhile, would pay more money into the system but get less out of it. By 2019, they’d be paying 11 percent of each paycheck toward their pension, compared with the current 8.5 percent. That contribution would drop back down to 9.75% once the pension funds are healthy, which could take decades.

The bill also does away with the annual, compounding 3 percent benefit increases that have been blamed for much of the strain on the laborers and municipal workers’ pension funds. Instead, workers would now see their pension checks increase each year by a flat 3 percent or half the rate of inflation, whichever is less. And most workers wouldn’t receive any increases in 2017, 2019 and 2025.

Retirees who earn less than $22,000 would be guaranteed to see their benefits grow by at least 1% a year, and also would not be subject to the three years of skipped increases.