Chicago Mayor Rahm Emanuel has reportedly struck a pension deal with city employees who are members of the Municipal and Laborers pension funds. The deal only affects half of the city’s workers. Firefighters and policemen, as well as its teachers, park and transit workers, are not included.
The deal, which calls for a five-year, $750 million property tax hike and a nearly 30-percent increase in employee contributions toward pensions, would provide temporary relief to a city budget that is under severe stress.
But beyond short-term relief, the deal does nothing to actually reform how the city runs its retirements for city workers. It uses tax hikes and more employee contributions to prop up a defined benefit system run by the same politicians who bankrupted it in the first place.
The city of Chicago and its sister governments (the Chicago Public Schools, the Chicago Transit Authority and the Chicago Park District) have more than $29 billion in unfunded pension liabilities. The city’s pensions are among the worst funded in the nation.
Moody’s Investors Service calls Chicago’s pension shortfall an “extreme outlier” when compared to other municipalities in the country. The credit ratings agency has downgraded the city’s credit four notches in the last nine months, and the city’s rating now sits just three notches above junk-bond status. Among the nation’s largest cities, only Detroit has a worse credit rating than Chicago.
But pensions are only a part of Chicago’s fiscal crisis.
All told, Chicago residents are officially on the hook for $63.2 billion in government pensions, health insurance and other long-term debt. This staggering figure totals more than $23,000 per Chicago resident, or more than $61,000 per household.
Solving Chicago’s fiscal crisis calls for bold, comprehensive reform. Unfortunately, Emanuel’s proposal has neither quality.
Here are four areas where his proposal falls short:
- It calls for
property tax hikes. Illinois already has the second-highest property taxes in the nation, and higher taxes will only chase more Chicagoans out of the city and into the suburbs or Indiana.
- City workers will have to pay more into a broken system. That’s not fair to the 30-year-old worker who is forced to contribute but is unsure there will be any money left by the time he or she retires.
- Politicians will still control Chicago’s pension systems, even though they’ve run them into the ground through decades of mismanagement.
- The plan fails to address police and firefighter pensions – the two funds most in need of reform. The police officers’ fund has just $0.25 and the firefighter fund just $0.31 for every dollar required to pay out future benefits. They are among the worst-funded pension funds in the nation, and with no real plan to fix them it’s only a matter of time before they run dry.
Emanuel’s proposal buys the city a short reprieve at the expense of taxpayers and workers. But Chicago doesn’t need – and cannot afford – more stop-gap proposals like this.
Instead, the first essential step to real reform is to take control of retirements away from politicians and put it in the hands of city workers. That’s the only way to end the perennial mismanagement of Chicago’s city worker pensions.
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