Chicago aldermen seeking re-election in 2019 are urging outgoing Mayor Rahm Emanuel to come up with a plan to tackle underfunded pensions.
During the first day of hearings on next year’s proposed budget, several of Emanuel’s City Council allies peppered his top financial aides with questions about something that’s not in the mayor’s final budget proposal: a way to pay for the city’s ballooning pension payments.
But aldermen on Monday made one thing clear: They do not want to raise property taxes again.
“The thought of having to go back to the well on property taxes is just unimaginable,” said Ald. Michele Smith (43rd Ward). “It’s very, very difficult to imagine why you would go to that after the horrible struggle this last property tax increase caused for us.”
Even though the mayor didn’t lay out a plan for addressing the pension crisis in his budget, he’s said he plans to make a speech about it in December. The city is facing dramatically higher state-mandated pension contributions in the coming years.
In 2015, just after Emanuel was elected to a second term, the City Council passed an unpopular property tax increase that helped reverse the city’s four pension funds’ march toward insolvency.
Smith and other aldermen are now seeking re-election in 2019 and will likely have to explain that tax hike to voters.
Over the summer, Chief Financial Officer Carole Brown and Emanuel confidant Michael Sacks floated an idea at an investors conference to borrow money to pay down a large chunk of pension debt. The move, they said, would save money as long as the interest on the new debt is lower than the interest on pension debt. During Monday’s hearing, Brown said the interest on pension debt is currently around 7 percent, whereas interest on the city’s general debt is around 5 percent.
But the so-called pension obligation bonds are risky and have failed in other places, including Detroit and Puerto Rico. The savings would also be dependent on market conditions.
Ald. Walter Burnett (27th Ward) peppered Brown with highly specific questions about that deal, which is not part of the 2019 proposed budget.
He bluntly wanted to know: “If we didn’t do anything, what do you think would happen?”
Brown diplomatically replied: “The city would have to identify revenues to make the increased contributions.”
Finding a solution to that giant problem will fall to the next mayor, and Chicago doesn’t have many options when it comes to pensions. The city must start increasing its annual payments by more than $500 million by 2022. State law requires they get all four pension funds 90 percent funded in the next 30 years. The total unfunded liability for all four funds is $28 billion.
Ald. Tom Tunney (44th Ward) echoed Smith’s concerns about raising property taxes again. He asked if the timeline set in state law could be adjusted.
“Obviously we’re moving always in the right direction to become more whole, but it seems to me that we got into this pension mess many, many, many years ago and we might not be able to get out of this as soon as these Springfield laws (dictate).”
But the timeline set out in state law is actually seen by analysts as too slow, Brown said.
Brown told aldermen that the mayor’s planned December pensions speech will “lay out what his thoughts are in terms of addressing the issue.”
Becky Vevea covers city politics for WBEZ. Follow her @beckyvevea.