A bill to enhance some Chicago pensions would force the city to sock residents with a property tax hike they can ill afford during the COVID-19 pandemic, Mayor Lori Lightfoot warned in a letter urging a veto.
Lightfoot laid out the city’s case against the firefighters’ pension legislation in a written appeal to Gov. J.B. Pritzker urging him to veto House Bill 2451 because it imposes a “massive unfunded mandate on Chicago taxpayers” that would also inflict damage to the already poor health of the Firemen’s Annuity and Benefit Fund, which is only 18% funded.
“Increasing FABF’s financial obligations when it is already in a dire condition, coupled with the absence of a clear funding source, is the definition of fiscal irresponsibility, and yet that is precisely what HB 2451 requires,” Lightfoot wrote in the Feb. 16 letter made public Friday. The legislation was approved during the General Assembly’s lame-duck session in January and sent to the governor’s desk Feb. 4. Once it arrives, the governor has 60 days to act.
The measure would extend a simple, 3% automatic cost of living adjustment to all Chicago firefighters hired by the deadline that establishes a tier one group. A group of firefighters that miss a birth date cutoff currently receive a 1.5% COLA. The city and firefighters fund agreed in previous years to extend the benefit by moving the cutoff date on a piecemeal basis. That meant the full impact was not incorporated into actuarial assessments.
The added cost that would be absorbed under the city’s pension amortization schedule amounts to $18 million to $30 million annually and up to $823 million in full by 2055 when the fund is slated to reach a 90% funded ratio.
“This huge increase in unfunded liabilities would necessarily mean another property tax hike for Chicagoans, which would regrettably add to the overwhelming economic duress that so many of our neighbors are already facing,” Lightfoot wrote.
A $94 million property tax hike included in the 2021 budget to help wipe out a $1.2 billion budget gap was one of the heavier lifts with council members who approved the budget in November.
A similar boost for the city’s police fund is also eventually expected, which would impose a burden three times the cost of the firefighters, given the fund’s much larger size. The annual cost is estimated at up to $90 million annually and $2.6 billion through 2055.
Unfunded pension obligations are arguably Chicago’s biggest fiscal strain. The collective net pension liabilities of the city’s four funds rose to $31.8 billion in 2019 from $30.1 billion with the funded ratios ranging from 18% to 42%.
“The better course for all involved is to gather all concerned and have a candid, rational conversation about how to once and for all put all of Chicago’s pension funds on a path to solvency,” Lightfoot wrote. “In the absence of this effort heaping on more debt is reckless.”
The city, which operates on a $4 billion corporate fund and $12.8 billion total budget, owes $1.8 billion in pension contributions this year. Payments are rising annually under funding schedules that established actuarially based payments under former Mayor Rahm Emanuel with the aim of moving the funds off a track to insolvency.
Pension funding strains and court rulings enforcing the state constitution’s ban on benefit cuts cost Chicago an investment grade rating from Moody’s Investors Service in 2015.
Pritzker has not commented directly on the legislation but when asked for a comment Friday, the governor’s office said: “The administration is reviewing the legislation, which would continue to provide firefighters with a pension benefit that the city has already provided for years.”
Administration sources also noted that the legislation passed with sufficient votes to survive an override, although given that the measure passed during the lame-duck session and a new legislature has since been sworn in, it would require a new vote if vetoed. The measure also passed with the majority of Chicago-based legislators on board. None of the city’s aldermen signed Lightfoot’s letter.
The mayor’s letter follows similar appeals from several business-civic groups including the Chicago Civic Federation. In addition to the cost burden, the Civic Federation raised questions about the state’s control of benefits that local taxpayers must cover.
State Sen. Rob Martwick, D-Chicago, originally sponsored the legislation as a House member where he headed the chamber’s pension committee. He moved to the Senate in 2019 and heads the pension committee there and served as chief Senate sponsor of the bill that impacts firefighters born after Jan. 1, 1966.
Martwick has defended the bill as a needed transparency fix for a benefit that has incrementally being adjusted multiple times in past years with agreement by the city and firefighters.
“This legislation shines a light on the true financial condition of the fund and prevents the city from intentionally kicking the can down the road and forcing bigger tax increases in the future,” Martwick said in a January interview.
The bill removed what Martwick called outdated language that understates the true value of the pension benefit paid to firefighters while allowing the city to structurally underfund its payments. Martwick called past piecemeal actions part of a wink-wink-nod-nod between the city and firefighters. “Is COVID a good time to do this? No, but it’s never going to be a good time to rip off the Band-Aid,” Martwick said.
via Bond Buyer
February 22, 2021 at 02:59PM