Mayor Lori Lightfoot’s $242 million pension prepayment plan will prevent Chicago’s four cash-strapped pension funds from having to “sell assets in a down market” to meet obligations, but Springfield shouldn’t be let off the hook, the Civic Federation president said Tuesday.
Laurence Msall said state law was used to create the police, fire, laborers and municipal employees pension funds, and the Illinois General Assembly dictates “who the members are, what their contribution levels must be and what benefits” those retired city employees receive.
That’s why Msall believes it’s time state lawmakers live up to their responsibility to consolidate, reform and fund local pension funds to relieve Chicago and municipalities from Peoria to Rockford from the “enormous pressure” they face to raise property taxes.
Gov. J.B. Pritzker “took an important step three years ago when he rolled up many of the smaller police and fire pension funds investment oversight into one state board. The next step would be to take over the local police and fire pension funds and municipal pension funds and have the locals manage the current obligation. And the unfunded liability should be absorbed by the state,” Msall told the Sun-Times.
“If we don’t do that, then we will continue to see local governments making very difficult decisions about whether to raise property taxes to fund essential services or raise property taxes to fund more pension contributions. It is not sustainable to have 25 percent — and in some cases, even more of your operating budget — going into your pension and pension-related debt.”
Pressed to identify funding sources, Msall said: “Regardless of whether you’re a pensioner or a multimillionaire who has millions of dollars in investments, you pay no Illinois state income tax. The federal government taxes retirement income. Illinois is one of the few states that doesn’t tax any amount of retirement income.”
What about broadening the sales tax umbrella to include professional services or amending the Illinois Constitution to eliminate the pension protection clause?
“Certainly, those should be on the table,” Msall said.
The General Assembly, after all, put a constitutional amendment on the November ballot that, if passed, would “prevent Illinois from ever being a right-to-work state,” he said.
“Yet a constitutional amendment to address the pension crisis is almost stuck in the mud down in Springfield. Very little action on the two core issues that drive local government finances and the state’s financial health: pensions and property taxes. And both are intertwined — especially at the local level,” he said.
City audit highlights pension problem
The city’s annual audit showed how desperately Chicago still needs a long-term solution to its $33.6 billion pension crisis, even after signing off on Bally’s plans for a $1.7 billion River West casino and a temporary casino at Medinah Temple. Tax revenue from those operations is being touted as a $200 million-a-year salvation for police and fire pensions.
According to the audit, firefighters pension fund has assets to cover just 20.9% of liabilities. That’s followed by the Municipal Employees Pension Fund Fund (23.4%), police (23.5%) and laborers (45.9%).
With the mayoral election now just over four months away, Lightfoot has made virtually no long-term progress on pensions beyond the new plan to prepay $242 million in future pension debt to avoid paying “compounded interest.”
Early on, Lightfoot floated a plan for a state takeover of the four funds, but was shot down by Pritzker
The governor subsequently made Chicago’s pension crisis infinitely worse by ignoring the mayor’s plea to veto a bill boosting pensions for thousands of Chicago firefighters.
Lightfoot had argued it would saddle city taxpayers with perpetual property tax increases to cover $823 million in added costs by 2055 and cripple the pension fund closest to insolvency.
Other solutions to the pension crisis the mayor has floated are a sales tax on services and an increased real estate transfer tax on high-end purchases, but neither has gained traction in Springfield.
Lightfoot’s record on city employee pensions pales in comparison to that of former Mayor Rahm Emanuel, who identified dedicated revenue sources for all four funds.
He more than doubled Chicago’s property tax levy for police, fire and teacher pensions; pushed through two telephone tax hikes for the laborers pension fund and phased in a 29.5% surcharge on water and sewer bills to bankroll the municipal employees pension fund, the largest of the four.
Emanuel also persuaded the Illinois General Assembly to give Chicago Public Schools a $450 million cash infusion and bankroll teacher pensions going forward.
