CHICAGO – The clock is now ticking on the fate of Chicago Mayor Rahm Emanuel's proposal to trim $220 million off the city's contribution this year to its police and firefighter pension funds.
After a long delay, Democratic Senate President John Cullerton has sent the legislation -- which phases in the shift to an actuarially required contribution instead of completing the move this year as required under a 2010 state mandate -- to Gov. Bruce Rauner.
The legislation also gives the city more time to reach a 90% funded ratio for the two public safety plans.
Senate Bill 777 would trim $220 million off a $550 million payment hike that would be required this year to contribute to the funds on an actuarial basis.
It cleared the General Assembly last year but Cullerton withheld it because its fate on the GOP governor's desk was uncertain amid growing partisan tensions over a fiscal 2016 budget. The tensions continue, and the state has been operating since July 1 without a budget in place.
"The governor has 60 days to act," said John Patterson, a spokesman for Cullerton, a Chicago Democrat. "If he does nothing it becomes law."
If vetoed, it would return to the Senate for an override attempt and if it meets the required three-fifths super majority threshold to override it would then head to the House.
The package initially cleared the Senate by more than a three-fifths margin. Override attempts have been tricky in the House where every Democratic lawmaker's vote is needed to pull off an override. If Rauner uses his amendatory veto power, lawmakers would have to consider whether to accept the changes or attempt an override.
Emanuel's administration recently made a $220 million draw from the city's $900 million short-term borrowing program to meet a deadline to set aside the funds. The remainder of the $550 million contribution spike is being covered by a property tax hike that phases in over four years to reach $543 annually.
City finance officials portrayed use of the credit line as short-term cash flow management issue.
"We will not be issuing long-term debt to make this pension contribution. The city continues to believe the governor will support Senate Bill 777 as it protects taxpayers and provides a responsible funding plan to secure police and fire pensions," said finance department spokeswoman Molly Poppe.
The city pays an interest rate of 3% on the line. The credit line would be paid off if the amortization bill is signed.
Rauner has offered mixed signals on the legislation, in some comments saying it represents a kicking of the can down the road and in other saying he would be willing to grant city requests if Emanuel uses his political muscle to convince Democratic lawmakers to get behind his legislative agenda.
“The governor has been clear he will consider this legislation as part of a broader package of structural reforms that help taxpayers across the state. He welcomes dialogue and negotiation with all stakeholders as the process moves forward,” Rauner spokeswoman Catherine Kelly said.
City budget officials told council members last year that cuts and/or other tax hikes would be needed if the legislation was not eventually adopted.
The city is trying to avoid hitting taxpayers to cover the difference because it is likely to need additional funding for its other two employee pension plans, after the Illinois Supreme Court ruled against an overhaul package the state had approved in 2014.
With $20 billion of unfunded obligations, Chicago's pension systems are just 34% funded and investors and analysts are watching closely because the city's pension woes have driven its credit erosion.
The city carries a junk-level rating of Ba1 from Moody's with a negative outlook and a BBB-plus rating from Standard & Poor's with a negative outlook. Since release of the court ruling, Fitch Ratings dropped the city's rating to BBB-minus from BBB-plus and maintained a negative outlook. Kroll Bond Rating Agency dropped the city's rating to BBB-plus from A-minus and maintained a negative outlook.