Updated at 5:15 p.m.
Illinois Gov. Pat Quinn signed a controversial overhaul of two Chicago pension systems into law on Monday, as Mayor Rahm Emanuel vowed he wouldn’t raise property taxes for at least a year to pay for the pension changes.
Those changes, which were pushed by Chicago Mayor Rahm Emanuel and approved by state lawmakers in April, would scale back retirement benefits and requite City Hall to pump more money into the troubled pension funds for laborers and municipal workers. The municipal fund is projected to have only 37 percent of the money it will need in the future, while fund for laborers will have just over half the money it will need.
To bolster the two ailing pension funds, Emanuel had been pushing to raise Chicago property taxes by $50 million a year, netting the city $750 million dollars in new revenue over a five-year phase-in period. Emanuel backed off that plan after Quinn signed the bill on Monday.
In a statement released after Monday’s bill signing, Quinn reiterated his disdain for that approach.
“I strongly urge the Mayor and City Council to follow our lead and identify a comprehensive, balanced solution to Chicago’s pension crisis,” Quinn wrote, referring to a recent overhaul of the state’s pension systems. “Chicago’s finances can and should be set on the track to long-term stability in a way that does not hit homeowners the hardest.”
In a phone interview with WBEZ minutes after the governor’s office announced he’d signed the bill, Emanuel suggested the city could raise its monthly telephone tax to free up more money for pensions.
“It gives us the opportunity now to take property taxes off the table for the first year,” Emanuel said.
On Friday, Quinn signed a law that will allow Chicago to increase its monthly telephone tax from the current $2.50 to $3.90, which some speculated could be used to pay for pensions. The new revenue must fund the city’s 911 call system, but a hike would also make more money available for the higher city pension contributions required by the new law.
“We’re gonna find a lot of efficiences and savings,” Emanuel said. “We now have a year to see alternatives, and we have the breathing room now to do that, which we secured.”
The mayor would not say how he’d pay for higher pension costs after next year, nor did he outline any fix for the ailing pension funds for police, firefighters and Chicago teachers. But the new tack relieves him of having to convince aldermen to raise property taxes, just months before the citywide elections in February 2015. It also gets Quinn out of a political pickle.
Easing the property tax burden on Illinoisans has been a pillar of the governor’s 2015 state budget proposal. Signing the bill would have opened up the governor to more attacks from his Republican gubernatorial challenger, Bruce Rauner, who has already argued that Quinn would be paving the way for a tax increase with his signature.
The mayor’s administration says the pension bill signed Monday would solve about half of Chicago’s roughly $20 billion public pension problem, largely by cutting back benefits for current and future retirees. But it could take decades for those penison funds to become healthy again.
More than 22,000 retirees would lose their 3 percent compounding annual benefit increase. Instead, retirees would see their pension checks increase at a flat 3 percent or half the rate of inflation, whichever is less. And all but the poorest workers would receive no increase at all in 2017, 2019 and 2025.
That means, under the bill’s provisions, a retiree with a $35,500 annual pension would see their benefit grow to nearly $40,000 by 2025, according to a WBEZ analysis. But under the current system, their pension would be about $49,000 by that time.
More than 34,000 current city workers would have to pay more into the pension systems, but get less out of it once they retire. By 2019, workers would be paying 11 percent of each paycheck toward retirement, compared to the current 8.5 percent. That contribution rate would drop to 9.75 percent once the pension funds are healthy, which could take decades.
City Hall would also pay more. The bill would finally do away with the anachronistic funding formula Chicago has used for decades to calculate its annual pension contributions, which is a primary cause of the current underfunding crisis. And if future politicians try to skimp on payments, the pension funds will be empowered to take City Hall to court, while the state could begin intercepting the city’s share of state money.
Meanwhile, a coalition of powerful city workers’ unions released a statement late Monday slamming the governor’s action because they believe the bill violates a part of the Illinois Constitution that says pension benefits “shall not be diminished or impaired.”
“Unfortunately, some elected officials have chosen to ignore the constitution…opting instead to slash the retirement life savings of our city’s public health professionals, teachers’ aides, librarians, cafeteria workers, and other public employees and retirees,” the statement reads. “The Mayor’s plan is unfair and unconstitutional, and our unions intend to seek justice and will be preparing to file suit.”
Gov. Quinn has talked about the Chicago pension plan in the context of a tax system that he says allows municipalities and local governments to rely too much on property tax rates to pay their bills.
“The property tax is not based on ability to pay,” Quinn told an audience of civic and political leaders earlier this year. “We’re using a 19th century property tax system to fund the most important part of the 21st century: educating our students.”
Quinn’s Republican opponent in the November gubernatorial election, Bruce Rauner, has said he would veto the bill because of the calls for higher property taxes on Chicago residents. Rauner even went so far as to release automated phone calls, urging residents to call their state representative or senator to vote against the bill while it was being debated in Springfield.
Tony Arnold covers Illinois politics. Follow him @tonyjarnold.