Just five months before leaving office, Chicago Mayor Rahm Emanuel on Wednesday is expected to urge a series of controversial fixes for the city’s foundering pension funds, including a change to the Illinois Constitution and new revenue from legalized marijuana.
During a rare speech before the full City Council, Emanuel is also expected to suggest using money from a yet-to-materialize Chicago casino to bolster the four pension funds for retired city workers, according to a source close to the mayor.
He’ll also encourage aldermen to consider a plan to borrow money for pension payments, though the source said the mayor wouldn’t push for that to happen before he leaves office in May.
Emanuel will also acknowledge the political difficulty of some of his ideas, according to excerpts of his speech that WBEZ has reviewed.
“Whatever the results of the coming election, we cannot afford to return to the politics of the past, where promises are made without the means to fulfill them. We cannot allow the boulder we pushed up the hill to roll back down,” the speech reads.
The outgoing mayor will also use the speech to outline his legacy of making difficult choices in order to rein in pension costs, the source said, and to “lay the groundwork for a fuller discussion” about Chicago’s pension woes.
After decades of underfunding, Chicago’s pensions for police, firefighters, laborers, and municipal workers are $28 billion short of what they’re required to pay out in retirement benefits. In recent years, pension costs have gobbled up an ever-growing share of city revenue, crowding out money for city services.
For much of his second term in office, Emanuel lobbied Springfield to ease the pension burden, but it was an uphill battle. Wednesday’s speech is about framing the conversation around pensions, rather than pressuring aldermen into taking another tough pension vote ahead of the Feb. 26 city elections.
Instead, those tough decisions will fall to one of the crowded field of candidates running to replace Emanuel, who is not running for a third term. It will also fall on state lawmakers who would have to approve some of the major changes he’s suggesting.
No easy way out of Chicago’s pension mess
All the options are politically fraught.
A provision in the state Constitution says government worker pensions “shall not be diminished or impaired.” That’s made it impossible for the Emanuel administration to reduce the compounding, annual cost-of-living increases for pensioners, which it pegs as a main cost driver.
“What kind of progressive, sustainable system guarantees retirees three percent annual compounded pay increases when inflation has been at basically zero and current employees have at times been furloughed, laid off, or received one percent raises?” Emanuel is expected to say Wednesday, according to a copy of his prepared remarks.
“There is nothing progressive about three percent compounded raises for retirees and furloughs for workers. The mantle of progressivity must not just be more taxes on the wealthy. It must be more respect for our workers’ paychecks.”
When Emanuel and former Gov. Pat Quinn tried to eliminate that increase through pension reform in 2014, the Illinois Supreme Court called it unconstitutional two years later.
Because all Illinois pensions are governed by state law, changing the so-called “pension protection clause” would be a heavy lift. An amendment to the state constitution would first need approval from three-fifths of the General Assembly, then from voters in 2020. And any move to cut benefits is sure to be met with staunch opposition from the very labor unions politicians lean on for money and resources come election time.
Meanwhile, using revenue from a Chicago-based casino is an old plan Emanuel had suggested before his second term in office. But it’s fallen short of winning the necessary approval from Springfield lawmakers. Taxing and legalizing recreational marijuana use would also fall to state lawmakers and the governor.
Incoming Democratic Gov.-elect JB Pritzker supports legalized pot. But he’s been non-committal about the future of a city-run casino, telling WBEZ earlier this year only that he’s “open to new revenue sources like expanding gambling in Illinois.”
Emanuel is also expected to mention borrowing money to help pay for pensions, but his exact gameplan is unclear.
Ahead of Emanuel’s 2019 budget address in the fall, the administration had been floating the idea of pension obligation bonds to help the city brace for state-mandated increases to revive all four funds. Paying off the bond debt would cost the city less money than the pension debt, because bonds benefit from a lower interest rate.
A pension problem that’s only growing
Chicago’s state-mandated payments to its workers’ retirement funds are set to more than double over the next five years, from just over $1 billion this year to $2.1 billion in 2023. And the next mayor will be tasked with finding solutions palatable to a tax-weary public.
In 2015, the City Council approved a phased-in, $544 million property tax hike to cover police and fire pensions. In 2017, the city council approved a five-year tax increase on homeowners’ water and sewer bills to help pay for pensions. And earlier this year, the city boosted the 911 emergency surcharge to $5 in order to free up more pension money.
Despite the fiscal pain, revenue from those tax and fee hikes still won’t be enough for Chicago to keep up with its pension payments.
That’s because the city’s pension payment schedules are are governed by the state’s pension code. It sets a specific timeline when the city will need to start making annual payments to get the funded ratio to 90%, which pension experts generally consider to be fully funded. For the police and fire funds, the clock starts in 2021 and ends in 2056. The labor and municipal funds will need to hit that ratio by 2059.
Chicago's pension crisis has been decades in the making. Until recently, the city used an arbitrary equation to determine the city of Chicago’s share of the bill each year. But that so-called “multiplier” bore no relationship to the actual cost of paying out pensions, and over the years, the health of Chicago’s pension funds deteriorated.
Claudia Morell covers city politics for WBEZ. Follow her @claudiamorell.