The City of Chicago needs $1.5 billion a year beginning in 2016 to shore up its pensions for municipal workers across police, fire, water, and other municipal departments as well as for elected officials, Mayor Rahm Emanuel has warned the city’s aldermen.
Like many pension fund managers, city officials had hoped above-market returns on investments would help cover funding shortfalls. However, investment performance has not met the optimistic return projections, making the shortfall from the city’s contributions worse.
Bringing the issue to a head in the next few years is a state mandate that municipalities start paying enough in 2015 to ensure fire and police pension funds are at least 90 percent funded within 30 years.
Reform, Cut, or Tax
In presenting his annual budget to the City Council in October, Emanuel cautioned without state pension reform it will be difficult to avoid a major property tax increase or dramatic cuts to services in future budgets.
“If we can realize all of the goals set forth in this budget, we can make Chicago the best city in the country to start a business, find a job, and raise a family,” Emanuel said in his budget address. “It has been a long road to get to where we are today. We have all worked hard to get the city to a point where we can balance our budget, invest in our children, improve our neighborhood services, make fundamental reforms to our government, strengthen our commitment to public safety, all while holding the line on taxes.
“But if we do not come to terms with our past and fix the crisis surrounding our pension payments, our work will be for naught. The residents of Chicago elected us to tell the hard truths so that we can make the tough decisions. We need to be honest with everyone about the challenges we face and the difficult choices we must make to solve them.”
$22.8 Billion Liability Increase
The city’s current pension woes are due in part due to a large increase in underfunding.
According to “Status of Local Pension Funding,” a report released in 2012 by the Chicago-based Civic Federation government research organization, between fiscal years 2001 and 2010 the aggregate unfunded actuarial accrued liabilities for the city’s 10 pension funds increased $22.8 billion, from $4.6 billion to $27.4 billion. Unfunded liabilities per capita in Chicago for the 10 local funds rose from $1,189 in fiscal year 2000 to $8,993 in fiscal year 2010.
Status of Local Pension Funding: FY 2010,” Civic Federation: http://www.civicfed.org/civic-federation/blog/civic-federation-releases-status-local-pension-funding-fy2010-report