Chicago Mayor Touts Pension Bill Passage

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CHICAGO – Chicago Mayor Rahm Emanuel heralded public safety pension relief granted by state lawmakers as a critical step toward stabilizing the city's fiscal foundation.

In a move that was far from certain, state lawmakers overrode a veto by Gov. Bruce Rauner to enact Senate Bill 777, allowing Chicago to re-amortize the funding schedule for its public safety pensions for short-term budget relief.

The action came Monday as lawmakers careened toward the end of their session Tuesday for a second year in a row without enacting a budget that can win Rauner's signature.

The pension bill trims $220 million from the city's required contribution this year to its police and fire retirement funds, and more than $800 million over the next four years as it phases in a shift to an actuarially required contribution and stretches out to 2055 the time allowed to reach a 90% funded ratio.

The 2010 state funding mandate originally required an ARC payment this year with the goal of reaching a 90% funded ratio by 2040.

Emanuel pushed through a record property tax hike last fall that raises the levy by $543 million in the coming years to fund the needed payments, but the phased-in tax increase was tied to the revised amortization schedule allowed by SB777.

"Yesterday was a significant day in allowing the city to right its fiscal ship and get its fiscal house in order," Emanuel said at a news conference Tuesday, adding that the legislation allows the city to avoid a further tax increase and helps stabilize the police and firefighter funds "in a responsible way."

Emanuel portrayed the legislation as one of the critical steps undertaken to shore up the city's battered balance sheet weighed down by $20 billion of unfunded pension obligations.

The other steps include his announcement last week of an agreement to shore up the laborers' pension fund. It calls for a similar amortization schedule and provides an infusion of revenue from the city's emergency telephone surcharge.

The city is in negotiations with unions representing employees in its larger municipal employees' fund about a funding and amortization package but Emanuel has not identified how the city will pay for higher contributions.

The Illinois Supreme Court in March declared unconstitutional the city's 2014 reforms to the two funds because they cut benefits.

Emanuel also highlighted other strides since he took office five years ago, including trimming a more than $600 million structural deficit by two-thirds and reducing or phasing out the use of reserves and poor debt practices like pushing off principal and borrowing for settlements.

"We are closer to the other side of the shore from where we began," Emanuel said.

While the city avoids having to further dig into tax base for police and fire pensions at a time when some tax or fee increase looms for the municipal employees' fund fix, rating agencies have highlighted the slow path to improvement each of the city's pension fixes take.

"Chicago's statutory pension contributions will remain insufficient to arrest growth in unfunded pension liabilities for many years under each scenario," Moody's Investors Service analyst Matthew Butler wrote in a report late last year that examined various outcomes of pending legislation and court decisions, including SB777.

And critics have noted that Emanuel embraced the financial tactics of his predecessor, Richard Daley, like scoop-and-toss restructurings and borrowing for operations, moving too late early last year to begin to shed many of those practices just months before Moody's dropped the city's bond rating to junk. Chicago is at risk of losing a second investment grade rating as Fitch Ratings has it at BBB-minus with a negative outlook.

The successful override, with the help of a few GOP votes, came three days after the Republican governor's veto, which was accompanied by a stinging attack on city management.

"This bill continues the irresponsible practice of deferring funding decisions necessary to ensure pension fund solvency well into the future," Rauner said in the veto message. "By deferring responsible funding decisions until 2021 and then extending the timeline for reaching responsible funding levels from 2040 to 2055, Chicago is borrowing against its taxpayers to the tune of $18.6 billion. This practice has to stop."

Emanuel thanked lawmakers and the Democratic leaders, House Speaker Michael Madigan and Senate President John Cullerton, both fellow Chicagoans. The override cleared the Senate in a 39-19 vote, three more than needed. In the House, which has failed on all but one previous occasion to override Rauner, success came later Monday with the help of three Republicans in a 72-43 vote, one vote more than needed.

Emanuel said he would focus his attention Tuesday, the final day of the legislature's regular spring session, on legislation that would help Chicago Public Schools' bleak fiscal situation. CPS is struggling to remain solvent and plug a $1.1 billion budget deficit.

Democrats proposed $700 million in additional K-12 education spending that would benefit Chicago and other high poverty districts in a larger fiscal 2017 budget package that Rauner has said is $7 billion short of needed revenue.

He has threatened to veto it and many believe no additional help will go toward CPS until there's a "grand bargain" solution on the budget impasse.

The education package also provides $205 million for CPS teacher pension payments and paves the way for a city council vote reinstating a $175 million property tax levy for teacher pension payments.

The House has approved the budget plan and the Senate could vote Tuesday.

On Tuesday, Rauner and Republican minority leaders said with the session slated to close without an agreement on fiscal 2016 and 2017 budgets they now back a stopgap funding plan that would get the state through at least the November election.

To fund the stopgap, the state would dip into non general fund accounts and forgo repayment of $450 million borrowed from special funds to balance the fiscal 2015 books.

"Democrats have driven us to a crisis point," Senate Minority Leader Christine Radogno, R-Lemont, said after a leaders meeting with Rauner. The stopgap funding is needed to ensure that schools and universities open, that prison bills are paid, and social services remain afloat.

Radogno insisted an agreement could be voted on Tuesday, but Democratic leaders said the proposal would go to budget and reform legislative working groups and no action was expected Tuesday.

Republicans also are pushing a stand-alone K-12 education package to ensure that schools open on time.

After May 31 legislation must be approved by a three-fifths supermajority to take effect immediately, compared to the simple majority during the regular session.

Rauner continues to push for what he calls a turnaround agenda on policy areas that include worker's compensation, tort reforms and local government collective bargaining curbs, which Democrats consider too favorable to business. Without passage of some items, Rauner won't support a tax hike to help balance the growing state deficit.

The state expects to collect only $32 million this fiscal year but is on course to spend at least $36 billion under continuing appropriations and court and consent agreements. The state is also on course without new revenue to possibly set a record $10 billion unpaid bill backlog by the fiscal year's end June 30.

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