Chicago wants more time to improve the funded status of its fire and police pension funds and increase employee contributions in order to reduce the burden on taxpayers of reforms signed into law by Gov. Pat Quinn earlier this year.
City chief financial officer Gene Saffold and budget director Eugene Munin unveiled the proposal, saying changes are needed to the original legislation to reduce a $550 million property tax hike in 2015. The city projects its changes would shave $240 million off that figure.
“We are hoping that the new General Assembly will make the necessary changes to their recent legislation to provide relief to taxpayers while supporting the police and fire employees who put their lives on the line for us each day,” Saffold said.
Chicago wants to lower the 90% funded goal established in the law to 80% and extend the deadline to reach the target to 50 years from 25. Officials argue the city should be afforded the same 50-year term as Illinois and the Chicago Transit Authority are following under previous legislation.
The city’s proposed changes would impose a 1% annual increase in employee contributions over three years, raising the final contribution rate to 12% for police officers and 12.125% for firefighters. Under the law, any increases needed to fully fund the pensions are borne by the city. The existing ratio is for , the employee to contribute $1 for every $2 paid by the city. The law would increase that to a 5-to-1 ratio. The proposed change would put the ratio at 3 to 1.
“We must look at all three legs of the pension stool — employee and employer contributions, investment returns, and benefit payouts — to ensure they are in balance and healthy enough to sustain the pension system,” Saffold said. “This proposed legislation does not comprehensively address our pension issues, but it does significantly reduce the extreme burden on taxpayers caused by the recent changes to the public safety pension law.”
The reforms approved by the state legislature pose such a significant burden to Chicago in part because the payment schedule would shift to one based on an actuarial formula. The city currently contributes to the funds based on a percentage of salary, which has typically fallen far short of the annual actuarially based contribution needed to reach a fully funded status.
Chicago’s unfunded pension liabilities in its four funds total $14.6 billion. At the close of 2009, the firefighters’ fund was 30% funded and the police fund was at 37%, according to a May 2010 report issued by a pension commission appointed by Mayor Richard Daley.
The city’s finances are strained by a rising structural deficit, a high debt burden, dwindling reserves, and weak pension funds. The public safety pension reforms also established a two-tiered system with reduced benefits for future employees. That change was supported by the city. Daley is not seeking a seventh term in the municipal elections next month so solutions to the pension funding woes will fall to his successor.
