Decision Day For Gov. Quinn On Chicago Pension Plan
It’s decision day for Illinois Gov. Pat Quinn. Quinn is scheduled to act by the end of Monday on a major pension reform bill that would affect the retirement plans for more than 50,000 City of Chicago employees.
The bill, which was pushed by Chicago Mayor Rahm Emanuel and approved by state lawmakers in April, would scale back benefits for retirees and force City Hall to pump more money into the 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 pensions, Emanuel wants 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.
But the mayor’s push for a property tax hike has put Quinn in 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 outright would also open 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.
Emanuel told WTTW’s “Chicago Tonight” last week that he is “open to other ideas” for raising money for pensions, though he has not offered specifics. He also faces a hurdle in convincing skeptical aldermen to vote for a property tax hike just months before they run for re-election in February 2015.
“I do believe that the City Council believes firmly in putting the city on the course of addressing its challenges head on, not avoiding them, and being honest with people,” Emanuel told WTTW. “If people have other ideas that are sustainable and legal, we’ll look at them.”
The pension bill would solve about half of Chicago’s roughly $20 billion public pension problem, largely by cutting back benefits for current and future retirees. That has drawn the ire of several powerful labor unions, who argue the bill violates a part of the Illinois Constitution that says pension benefits “shall not be diminished or impaired.”
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 formulaChicago 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.
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 it could lead to a property tax increase for 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.