City Council calls pension crisis a 'ticking time bomb'

CITY COUNCIL | Burke says dilemma needs to be addressed before fund goes bankrupt

Tuesday, October 19, 2010

Mayor Daley was accused Monday of ignoring a “ticking time bomb” for Chicago taxpayers: four city employee pension funds that will run out of money by 2030.

During opening day of City Council hearings on Daley’s final city budget, Ald. Edward M. Burke (14th), chairman of the Council’s Finance Committee, homed in on the pension crisis that will force Chicago taxpayers and city workers to dig deeper..

Daley has vowed to push legislation in the Illinois General Assembly’s fall veto session that would extend a two-tiered pension system to newly-hired police officers and firefighters.

But, Burke said that’s nowhere near enough to diffuse, what he called a “ticking time bomb.”

He noted that the city’s entire property tax levy is gobbled up by pension and debt payments and that the pension funds are selling off assets to meet current obligations.

“I don’t know that we’re doing a good enough job of selling our dilemma to the taxpayers. ... Nine years from now, we’ll have a bankrupt [firefighters] pension fund,” Burke said.

“It’s similar to watching the house burn down without turning on the fire hydrant. I just don’t think the city has the luxury of waiting. ... The full faith and credit of the city and the taxpayers … is in play here. These contributions are gonna have to be made. If they don’t earn the money on investments, then we’re gonna have to supplement it with tax dollars. How long can we continue this?”

Chief Financial Officer Gene Saffold acknowledged that “$650 million a year for the next 40 years” will be needed to return the pension funds to fiscal health.

He also admitted that there are only four long-term solutions: higher employee contributions; reduced benefits; better investment returns or higher taxes.

Under questioning from Burke, Saffold dismissed a fifth possibility: following the state’s lead and issuing “pension obligation bonds” to free up $456 million in property tax revenues for other uses.

“It’s not as attractive an opportunity in the current environment … given the current structure of interest rates,” Saffold said, noting that top mayoral aides have “examined” the possibility.

Six months ago, the mayor’s pension commission concluded that reduced employee benefits, higher employee contributions and “new revenue” from taxpayers would all be needed to bail out four city employee pension funds that will run out of money in 20 years.

The Laborers, Municipal Employees, Police and Firefighters pension funds now have assets to cover just 42 percent of their future liabilities, down from 62 percent just two years ago and 80 percent in 1996.

Without benefit reductions, that would require the equivalent of a 52 percent increase in the city’s property tax levy and eight percent more from city employees.

With benefit reductions — everything from reduced maximum salary and a higher retirement age to lower cost-of-living increases and a pension cut for new employees — the annual gap could be reduced to $510 million.

Daley’s $6.15 billion 2011 budget uses one-shot revenues to hold the line on taxes, fines and fees and offer modest head tax relief, making life easier on aldermen facing re-election, but more difficult for his successor.

Several points of contention emerged during Day One of budget hearings — beyond the lame-duck mayor’s plan to take 111 police officers out of community policing and limit police hiring next year to 200 officers, nowhere near enough to keep pace with attrition.

The other main targets of aldermen’s ire were Daley’s decision to keep redundant layers of middle management while maintaining skeletal staffs of front-line employees and his plan to save $3.4 million by cutting off funding to local chambers of commerce and other neighborhood planning groups.

“It’s the lifeline of my community’s ability to grow and survive. I can’t imagine what my community will be like without those two chambers” of commerce, said Ald. Michelle Harris (8th).

The cut would eliminate funding to 90 Chambers of Commerce that receive anywhere from $15,000-to-$88,000-a-year for business assistance work.

The mayor’s plan to siphon $180 million in surplus funds generated by Chicago’s tax-increment-financing (TIF) districts will also be a tough sell with aldermen from a handful of wards where most of the money would be drawn: the 2nd, 3rd, 27th and 42nd.

Ald. Pat Dowell (3rd) said she intends to “fight hard” to prevent any diversion of funds from two of her favorite TIF’s: 47th and King Drive and 47th and Halsted.