Measures on pensions and Chicago budget wait another two weeks
The fate of Illinois Gov. J.B. Pritzker’s proposed public safety pension fund consolidation and two state law changes pursued by Chicago Mayor Lori Lightfoot won't be settled until the second half of the Illinois General Assembly’s fall veto session.
The legislature wrapped up the first three-day session Wednesday and will reconvene for a three-day session Nov. 12. Votes could come then or the measures could be pushed off to the regular session early next year.
Senate President John Cullerton, D-Chicago, is sponsoring the pension consolidation legislation introduced Tuesday as an amendment to Senate Bill 616.
“Consolidating downstate and suburban police and fire pensions is vital for relieving some of the burden of local property taxes while meeting our obligations to first responders,” Pritzker said in a statement.
The legislation would create the Police Officers' Pension Investment Fund and the Firefighters’ Pension Investment Fund and fold the investments of more than 600 individual funds that cover employees outside Chicago into the new funds empowered to “manage the reserves, funds, assets, securities, properties, and moneys” of their respective members.
The funds would “streamline investments and eliminate unnecessary and redundant administrative costs, thereby ensuring more money is available to fund pension benefits for the beneficiaries of the transferor pension funds,” reads the legislation.
Temporary boards would manage the funds during a transition period and then the permanent boards would be governed by a board with equal representation of employees and employers. Each local pension plan would maintain an individual and separate account within the new consolidated funds, such that no assets or liabilities are shifted from one plan to another.
Each of the two consolidated funds would be held in independent trusts, separate from the State Treasury, with sole governance provided by their respective boards. The legislation empowers the Illinois Finance Authority to provide loans to each of the funds to help cover consolidation costs.
The legislation follows the recommendations of Pritzker’s pension consolidation task force. The governopr believes the plan could generate $850 million to $2.5 billion in additional investment returns over the first five years and $3.6 billion to $12.7 billion through the 20-year ramp to a 90% funded mandate in 2040.
The roughly 650 systems carried $11 billion of unfunded liabilities in 2017 — up from $10 billion a year earlier — with an average funded ratio of just 55%, according to a report this year from the Illinois Department of Insurance. The new police fund would have more than $8 billion assets to invest and the firefighter fund more than $6 billion.
Local governments have been slapped with downgrades as they grapple with rising pension contributions with some forced to cut services, raise taxes, or look for infusions of cash through measures like privatizing their water systems.
Since last year local governments have faced the threat of state funding garnishments under a law that allows funds to intercept the revenue to cover actuarial contribution shortfalls. East St. Louis facing a $3.9 million diversion temporarily closed a fire station and laid off nine firefighters.
While some market participants believe the consolidation is a good step, its impact is limited. The Illinois Municipal League, which represents many local governments, supports the proposal and is encouraging its members to lobby lawmakers.
The Associated Fire Fighters of Illinois, which represents firefighters, supports the deal. It faces opposition from the Illinois Fraternal Order of Police and possibly local funds with better funded ratios. The Illinois Pension Fund Association which has said many of its member funds oppose such a move did not comment on the legislation.
Lightfoot’s proposed 2020 budget relies on lawmakers approving a graduated property transfer tax to generate $50 million next year and $100 million after that, along changes to the casino tax structure the city says are needed to lure financing and an operator. Future budgets would count on casino cash to shore up pensions and in turn structurally balance the city’s books.
Cullerton on Tuesday said lawmakers were “pretty close to a compromise” on the tax structure. If the city’s efforts fails, the state too would lose out on future tax revenue.
Some legislative sources believe the city’s chances at getting its agenda approved are complicated by the indictment this week of state Rep. Luis Arroyo, D-Chicago, on bribery charges and reports that the state senator who was the author of the original gambling expansion bill is the unnamed federal mole that led to the Arroyo charges.
At least a dozen House members, mostly from Chicago, are also opposed to the property tax transfer change unless the city commits 60% of the new tax revenue to affordable housing. Lightfoot said Tuesday with an $800 million deficit the city can’t afford to earmark the revenue generated by the change to housing.