Chicago Mayor Rahm Emanuel won state legislation approval for a restructuring of its public safety contributions, but no word on whether Gov. Bruce Rauner will sign as budget battle goes on.

CHICAGO - The Illinois General Assembly granted Chicago Mayor Rahm Emanuel's request for partial relief from a $550 million public safety pension spike in the waning hours of its spring session.


If the bill becomes law, it would ease up on a pension payment reckoning bearing down on the city's balance sheet by allowing it to continue underfunding its police and fire pension contributions.


The bill's fate when it reaches Gov. Bruce Rauner is unclear given the impasse between the freshman Republican and the Democratic legislative majority over a fiscal 2016 budget. Rauner stopped short of saying the bill faces his veto pen but had harsh words for the plan.


"This is a kick-the-can-down-the-road pension bill," Rauner said in an interview broadcast on WBEZ radio Monday. "We need to stop kicking the can down the road on our pensions….and we need to come together and meet on a bipartisan basis to discuss true structural change to the pensions that are fair to employees but also more affordable to taxpayers."


Rauner said he spoke with Emanuel over the weekend and wants to meet with him and legislative leaders to discuss reforms. Rauner had previously said he wanted a more sweeping omnibus style package of reforms although it's unclear what form they could take to survive a constitutional challenge. The city's bill initially provided some relief for local governments also but that was stripped from the legislation. An override requires a three-fifths majority, which Democrats hold in the General Assembly.


The legislation would pare $220 million from a $550 million contribution increase scheduled next year under a 2010 law aimed at stabilizing local government police and firefighter pension funds across the state by requiring employers to make actuarially based contributions; the bill would trim rising payments through 2020.

The near-term strain of covering the payment spike as well the long term strains of tackling $20 billion of unfunded liabilities in its four employee pension funds, which are collectively funded at just 34%, drove Moody's Investors Service to strip Chicago of its investment grade rating in May.

Under the legislation, Chicago would pay a total $619 million in fiscal 2016, including $199 million for the firefighters fund and $420 million for the police fund. Under the existing law in place, the city's payment next year was to reach $840 million.

The city's contribution due in 2017 would rise to $672 million, with $727 million due in 2018, $782 million due in 2019, and $824 million due in 2020. Future payments would then be based on an actuarially based formula designed to reach a 90% funded ratio in 2055.

The changes would add 15 years to the 2040 schedule for reaching 90% funding set forth in the 2010 law. The current contribution schedule, which has left the pensions underfunded, is based on a statutory formula tied to employee contributions.

"I am pleased that this afternoon the Illinois Senate recognized that SB777 provides a reasonable and responsible funding plan that will secure the pensions of our first responders while reducing the burden on our taxpayers," Emanuel said in a statement Sunday after the Senate vote. The House approved the bill Saturday.

"This weekend's passage is a critical first step to mitigate the $600 million property tax increase that current law mandates for Chicago taxpayers this year while ensuring that our police and fire pensions are fully funded," he said.

The legislation specifies that the city will levy a property tax to cover its payments and also earmarks any revenue from a casino should the city succeed in getting the state to approve one.

A bill expanding gambling in the state with a casino in Chicago surfaced last week but no vote was taken.

The legislation was filed late Friday by sponsor House Majority Leader Rep. Barbara Flynn Currie, D-Chicago. It would take effect upon being signed into law, but was not expected to go the governor immediately as lawmakers attempt to settle their differences with Rauner over a fiscal 2016 budget.

Republican lawmakers opposed the restructuring, saying the city knew the higher payments were coming and should have planned for them and that the changes just push stabilization of the funds further off.

Supporters countered that the restructuring was needed to avoid a steep property tax increase and that funds will still reach a strong funded ratio, just over a longer period.

The new amortization schedule mirrors one used by the city in its reform legislation approved by lawmakers last year to the city's two other funds that cover municipal employees and laborers. The city's payments under that plan rise by $95 million next year. A legal challenge to those changes is pending.

The pension legislation also adds more teeth to enforcement provisions, changing language that reads the pension funds "may" ask the state to withhold aid in the event the city falls short on required payments to "shall." Language was also added to allow the funds to pursue court action to force the city to make required payments.

The provision however says the judge considering such action would have discretion to set a reasonable payment schedule that doesn't impair the city's ability to protect the public's welfare and that any payments would be subordinated to the city's bonded debt. City officials said during a committee hearing that police and fire unions support the changes.

Chicago disclosed its plan and ongoing negotiations with police and fire unions in investor presentations late last month. The presentations were tied to its conversion of $800 million of floating-rate paper to a fixed-rate to shed bank credit risks and ease a potential $2.2 billion liquidity crisis sparked by Moody's recent downgrades of its GOs and some revenue debt.

A Fitch Ratings report said the city was also negotiating on raising employee contributions. The latter proposal was not included in the legislation.

Emanuel recently said he would outline a plan to tackle the higher contributions after the legislative session ends. The property tax levy currently collected by Chicago and overlapping governments stands at $4.2 billion. If the city is to cover its higher payments through the levy it must submit the levy hike by December.

The city must tread cautiously because delays in stabilizing the police and fire funds and a failure to come up with new revenues have been cited as potential downgrade triggers.

Moody's cited concerns over the impact on city pension reform efforts from the Illinois Supreme Court's voiding of state benefit cuts last month, when it dropped Chicago to Ba1 May 12.

The liquidity strains from Moody's downgrade to junk prompted Standard & Poor's to lower its rating two notches to A-minus while Fitch Ratings lowered its rating one notch to BBB-plus.

"Addressing near-term liquidity issues would result in removal of the Negative Watch, but the rating would likely remain on negative outlook pending implementation of pension solutions that move all of the city pension plans towards a clear path towards adequate funding while preserving sustainable budgetary balance," Fitch wrote.

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