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$1.5 billion a year cost to fix pensions?
Aldermen are warned of steep price as Emanuel makes pension reform push
By Hal Dardick, Chicago Tribune reporter
9:17 PM CDT, October 1, 2012 - Chicago Tribune
Absent significant pension system reforms, it would cost the city an extra
$1.5 billion a year beginning in 2016 to start the process of restoring
financial health to its pension funds, aldermen were warned Monday.
If those costs kicked in, services would be cut, taxes would soar or both.
Continuing to rely solely on property taxes to cover pension costs would result
in a tripling of the city levy, said Ald. Patrick O'Connor, 40th, chairman of
the Workforce Development and Audit Committee.
The tale of looming financial woe came at a six-hour hearing as part of Mayor
Rahm Emanuel's push to get pension cost relief for Chicago. Joining Emanuel were
mayors of smaller cities, villages and towns throughout the state in urging
legislators and Gov. Pat Quinn to enact pension reform — not just for state
government, but also for municipalities and counties across Illinois.
"I need Springfield, and not me, but the entire city of Chicago needs
Springfield to be a partner in finding a resolution to our retirement security
issue," Emanuel said at an unrelated event on Monday. "They've agreed that
they're going to deal with this in January."
Like Emanuel, Wilmette Village President Christopher Canning spoke Monday at
a meeting of the Metropolitan Mayors Caucus about the need for comprehensive
pension reform. He noted all municipalities face a state mandate to start paying
enough in 2015 to make sure police and fire pension funds are at least 90
percent funded within 30 years.
Absent pension fund changes — which could include higher employee
contributions, later retirement ages, 401(k)-style plans and lower
cost-of-living increases — Chicago and other municipalities would be forced to
cut services if they can't come up with additional revenue.
In Chicago, the additional police and fire pension cost could reach $580
million in 2016, according to figures provided to O'Connor's committee Monday by
the police and fire pension funds. Starting the 30-year process of fully funding
two pension funds for city laborers and other workers would cost $614 million
starting in 2016, according to figures provided by those funds.
Doing the same for the Chicago Park District would cost another $12 million,
officials said. O'Connor estimated the cost of bringing the pension fund for
Chicago teachers up to speed, which the state also has required, would be at
least $350 million more. The full tally would come to at least $1.5 billion.
"We're not talking about the real Armageddon the city faces if we don't get
out of it," said Ald. Richard Mell, 33rd. "We have to solve the situation as
quick as we possibly can."
Mell called on pension fund officials to urge Springfield to reform the
system, rather than just mandate higher government payments that would result in
a "backlash" from taxpayers.
"You have to go down and beat (state Senate President John) Cullerton, (House
Speaker Michael) Madigan and Quinn up," Mell told them. "Because that's where
this fault really lies."
Pension fund officials put part of the blame on fund investments that did
poorly during economic downturns, particularly the Great Recession, and
early-retirement plans that boosted pension payouts. They also noted that public
pensions don't have the same kind of stringent payment requirements as private
pensions.
But Ald. Michele Smith, 43rd, who pushed for the hearing, said assessing
blame is not the point.
"We are where we are," Smith said. "Questions about blame and all that stuff
I don't find particularly helpful. This is a classic: 'We are where we are. Now
we've got to start organizing to fix it.'"
Tribune reporter John Byrne contributed.
hdardick@tribune.com
Copyright © 2012, Chicago Tribune