Plan to pay Chicago pensions would raise property taxes

Chicago Mayor Rahm Emanuel offers his plan to fix the city's pension shortfall.
April 1, 2014 4:17:11 PM PDT
Chicago Mayor Rahm Emanuel offers his plan to fix the city's pension shortfall.

The mayor is suggesting a combination of benefit cuts and tax hikes.

It was Chicago City Hall's long-dreaded "day of reckoning". Mayor Emanuel, only 11 months before the city election, announced the first phase of his plan to resolve Chicago's $19.5 billion unfunded pension debt.

"I rejected allowing the pensions to go belly up, I rejected the idea of a massive property tax increase and I rejected the idea of massive layoffs and service cuts," Emanuel said.

Emanuel's plan is a compromise affecting about half the city's workers, not including police, firefighters and teachers, and about 19,000 retirees.

The mayor says without his changes the two pension funds involved would go broke.

"This achieves the goal of guaranteeing that people will get a pension," he said.

Affected city workers would increase their contributions half a percent a year for five years. On a $60,000 annual salary, that's about $300 more each year.

Meanwhile, retiree cost-of-living increases would be scaled back to whichever is lower: Three per cent or half the consumer price index.

"They just won't have an automatic three per cent compounded increase which is extremely expensive and extremely generous," said Laurence Msall, Civic Federation.

The mayor would seek an increase in the city's property tax beginning in 2016: For a $250,000 home, 58 additional dollars each year for five years for a total $290 tax increase.

"I certainly don't look forward to paying higher property taxes they're already through the roof," said taxpayer Russell Greenblatt.

"You're not really fixing the problem just by adding more money to the pot," said Elida Cruz.

Most aldermen heard the mayor's pension plan on morning news reports.

"Sometimes we find out stuff through the papers," said 22nd Ward Alderman Ricardo Munoz. "That's not good."

"That's problematic because you're not sharing information with people who are going to be put on the spot and have to deal with that," said 32nd Ward Alderman Scott Waguespack.

The mayor, who toured the 1871 business incubator Tuesday morning, would not say if an even larger tax increase is in the works should the police and firefighters unions accept a similar deal affecting their much larger pension funds.

The city council and state lawmakers must approve the mayor's deal and most importantly, it must survive an inevitable challenge in the courts.

"The model we used is everybody has to give something so nobody has to give everything," said Emanuel.

The deal would affect only those employees covered by the municipal and laborers pension funds which cover just over half the city work force. Their contributions would increase half a per cent a year for five years. Meanwhile, retiree cost of living increases would be scaled back.

"Nobody's benefit gets cut," Emanuel said. "It continues to grow it just doesn't grow at the pace it once did."

"Our calculations show it would cut more than a third out of the actual value of their pensions," said Jesse Sharkey, Chicago Teachers Union.

The CTU called the benefit cuts "draconian" and said the mayor could do a better job finding new revenue streams.

"We think that if the mayor wants to make real pension reform, he would talk more honestly about creative ways to find revenue," Sharkey said.

The mayor would not say if an even bigger property tax increase is in the works should the police and firefighters unions accept a similar deal affecting their much larger pension funds.

One other note, as badly as the city needs the revenue, the property tax increase would not become effective until 2016. That, of course is after the 2015 city elections.


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