Emanuel should fix Chicago’s pensions now
According to Moodyâ€™s latest report on local government pensions, Chicagoâ€™s adjusted pension and debt burden (relative to its tax base) is the largest in the nation. The city is now putting about 8 percent of its revenues toward its pension funds. But the pensions are so underfunded that if the city made the full annual pension payment it would amount to 28 percent of revenues. The city has seriously neglected funding its pension plans.
The problem is complicated by the fact that Chicago must work through the Illinois General Assembly to enact changes to pension contributions and benefits. There is little discretion at the local level on these issues. Chicago Mayor Rahm Emanuel should go to Springfield and twist arms in the General Assembly before credit rating agencies whack the city with more downgrades. Instead, Emanuel intends to push the issue off for several years and do nothing. The Chicago Tribune reports:
Faced with the prospect of a major tax hike or severe service cuts just as he stands for re-election a year from now, Mayor Rahm Emanuel told the Tribune Wednesday that his formula for fixing the financially out-of-whack government worker pension system requires â€˜reform, revenue and time.â€™
While Emanuel wasnâ€™t offering specifics, a plan put forward by his chief Springfield ally could provide an outline.
The pending measure would require a series of small city property tax increases starting in 2018 â€” three years into what would be Emanuelâ€™s second term as mayor. It also would delay the need for big increases in city pension payments to 2022, three years into what would be Emanuelâ€™s third term, if he still was mayor.
This is a picture of a politician too timid to address a core issue that faces his city. Matt Taibbi has a big piece in Rolling Stone about how Wall Street has taken advantage of public pension funds, but I consider Emanuelâ€™s lack of action just as egregious. Pension problems will not fix themselves, especially when the black hole is as big as Chicagoâ€™s.
The table below is what Chicago should have paid (Annual Pension Cost) versus what it paid (Contributions Made). Note that Chicago underfunded its pension by over $1 billion. This underfunding is just pushing an expense into the future. Note that the grossly underfunded Chicago Teacherâ€™s Pension Fund is not even in this table. It is underfunded by about $9 billion.Â Illinois covers 6 percent of the cost of teachersâ€™ pensions, according to Moodyâ€™s, but there is still an enormous underfunded liability that Chicago is responsible for.
What should Mayor Emanuel do?
First, he needs to put the information about public worker pay and pensions online, like California. The names of employees should be removed, but salary, benefit and pension levels should be available for taxpayers to study. Taxpayers must know what they are responsible to pay for.
Second, Emanuel could convene a national symposium on public pensions and have a broad discussion about how these liabilities are crushing cities, counties and states (he could invite Cook County). By broadening the discussion to commonly-shared problems, the issue can be addressed without directly pointing fingers. This could be of enormous benefit to his old boss, President Obama, by jump-starting a meaningful discussion of the problem and working to fund public pensions rather than working against them.
Third, Emanuel needs to call Mayor Angel Taveras of Providence, Rhode Island and get tips on how to negotiate with unions. Taveras saved his city from bankruptcy by scaling back pension and benefit packages for his workers and retirees. Emanuel should start at home by wrestling with public unions to lay the groundwork for changes at the state assembly.
The fight for Chicagoâ€™s pensions must happen now, or the city’s fiscal problems will accelerate and raters will likely penalize its ratings. Mount the pension pony, Mayor Emanuel.