FOR YOUR INFORMATION

[cdillon]

On Thursday, October 2, 2014 10:39 AM, Tony Jin <tonyjin@sbcglobal.net> wrote:








Chicago’s unfunded pension obligations have ballooned to $37.3 billion — a more than three-fold increase since 2003 — because of inadequate employer contributions, declining investment income and a shrinking base of active employees, a taxpayers’ watchdog group has concluded.





The Civic Federation’s latest report on the sorry state of the Chicago area’s 10 public employee pension funds does not factor in a Chicago pension reform bill signed by Gov. Pat Quinn that saved the Municipal Employees and Laborers pension funds.


But Civic Federation President Laurence Msall said the report nevertheless underscores the need for Mayor Rahm Emanuel and police and fire union leaders to forge an agreement on pension reforms and for the Illinois General Assembly to approve it during the fall veto session.


“We’ve waited too long already. The mayor has to get the General Assembly to recognize the dire situation of these pension funds and how it’s costing taxpayers so much more by waiting,” Msall said.


“This is yet another alarm that should be going off. Nothing short of both reduced benefits and increased taxes by Chicagoans is going to stabilize these funds. Anything else ignores the dire financial condition. This is an argument to do it as soon as possible. Police and fire have eroded to such a state, the city has very little time to save these funds.”


The report found the gap between current assets of the ten funds and pensions promised to retirees had risen to $37.3 billion.


The 10 funds had an average funding level of 45.5 percent in 2012, down from 74.5 percent a decade ago.


The firefighters pension fund is in the worst shape, with assets to cover just 24.4 percent of future liabilities. The CTA pension fund is in the best financial condition at 59 percent.


Government employees did their part by contributing the required portion of their paychecks to their future pensions. But the government contribution fell nearly $2 billion short of the $2.8 billion required to cover costs and reduce a portion of unfunded liabilities over a 30-year time frame, the report concludes.


Investment income didn’t help. And the future outlook is bleak, thanks to a “declining ratio” of active employees to beneficiaries.


In 2012, the 10 funds had 1.11 active employees for every retiree, down from a 1.55 ratio a decade ago. The police, laborers, Metropolitan Water Reclamation District, Forest Preserve and CTA funds all had more beneficiaries than active employees in 2012.


Counting statewide funds, the pension liability amounts to $19,579 for every Chicago resident.


In 2016, state law requires the city to make a $550 million contribution to shore up police and fire pension funds that have assets to cover just 30 percent and 24 percent of their respective liabilities.


If Emanuel chooses to fund the payment with property taxes, the city’s levy must be raised in 2015, so bills issued the following year reflect the increase.


But, instead of including that payment in the financial analysis now used as a substitute for Chicago’s preliminary budget, the mayor left it out, assuming he will get both revenue and reform before the payment is due.


Msall has argued that Emanuel is actually making two risky assumptions that put off the day of reckoning until after the mayoral election.


One is that he’ll get police and fire pension reform this fall, even though a recent Illinois Supreme Court ruling on retiree health care has some members “questioning whether they will take up pension reform.”


The other assumption is that, even if he doesn’t get it, he’s not required to increase the city’s property tax levy until December, 2015.


“To us, the statute appears vague. It doesn’t say `tax year.’ It says `2015.’ Our assumption is, if you’re required in 2015 to make the contribution, you have to include it in your 2015 levy,” Msall said in July.


“What will become critical when the mayor presents his budget in October is that, if he has not been successful, what’s the back-up plan to either make this contribution — either through taxes or budget cuts — that would not jeopardize the city violating state law.”


Budget Director Alex Holt has refused to discuss “Plan B.” She would only say that, historically, pensions have been funded from a “variety of sources”—not just the property tax.


“There might be a statewide revenue solution, as opposed to just a local revenue solution because it’s actually a statewide problem,” Holt said, raising the possibility of a sales tax on services or an increase in the local share of the state income tax.


“We don’t need to make the increased payment until 2016, giving us time to work with police and fire, work with the state, work with the other municipalities. … Once we know what the reform package looks like, then we can have a conversation about what the revenue package looks like. We’ve got a year and a half to make that decision.”


The City Council has already approved a 56 percent increase in the monthly surcharge tacked on to telephone bills to cover the first year of increased obligations to shore up the Municipal Employees and Laborers pension funds