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 Chicago Mayor Rahm Emanuel in a speech to the City Council Dec.
12 called for a constitutional amendment to Illinois’ restrictive pension
clause. State lawmakers must vote to amend the constitution with three-fifths
majorities in both chambers of the General Assembly before an amendment can go
to voters for approval on the 2020 general election ballot.
A constitutional amendment to allow changes to future, unearned pension benefits
is the only way to stop rising property taxes and income taxes, as well as
prevent annual pension contributions from crowding out government spending on
education and social services, both at the state and local levels.
Illinois spends the most in the nation on pension benefits at the state and
local levels, as a share of all government spending. The Land of Lincoln has the
worst pension debt-to-revenue ratio of any U.S. state ever recorded.
According to the Chicago Tribune, Emanuel declared:
“Think about it. What kind of progressive, sustainable system guarantees
retirees 3 percent annual compounded pay increases when inflation has been at
basically zero and current employees have at times been furloughed, laid off, or
received 1 percent raises?
“There is nothing progressive about 3 percent compounded raises for retirees and
furloughs for workers. The mantle of progressivity must not just be more taxes
on the wealthy, it must be more respect for our workers’ paychecks. I applaud
our labor unions for being willing to fix this inequity in 2012 with me.”
The focus on Illinois’ guaranteed 3 percent post-retirement benefit increases is
particularly important. Emanuel is right to refer to these increases as
“raises,” because they are not true cost-of-living-adjustments, or COLAs.
A COLA is intended to help pension benefits keep pace with inflation so
purchasing power stays the same over the course of retirement, but if the
increase is a guaranteed rate, regardless of inflation, then it does not account
for “cost of living” at all.
Arizona law used to provide for “permanent benefit increases.” However,
lawmakers, voters and labor unions joined together in that state to make changes
to pension benefits, including pegging future increases to inflation, making
them true COLAs. Arizona has a pension clause that is virtually identical to
Illinois’, and Arizona state courts struck down previous attempts to alter the
benefit increases through statute.
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In other words, Arizona was in almost the same
situation as Illinois, and amending the Arizona Constitution
provided the way out.
According to the Tribune, Emanuel also called for 100 percent of the
city’s share of revenue from legalized recreational marijuana to be
used to pay for pensions.
In total, the Chicago-related pension funds have
more than $41 billion in pension debt.
Moody’s Investors Service currently gives the city
a junk credit rating, largely due to unfunded pension liabilities.
Chicago has struggled to make pension contributions since the last
national recession, despite massive tax hikes including a property
tax increase of $543 million over four years, new taxes on
ridesharing and e-cigarettes, tax increases on water and sewer
services and 911 calls, and hikes in fees ranging from garbage
collection to building permits.
The next mayor of Chicago will inherit a pension mess with
contributions set to spike sharply in the next few years. The
pension payment is set to increase by nearly $1 billion five years
from now, compared with this years’ payment.
Illinois’ and Chicago’s only responsible long-term
option for getting out of the mess is meaningful pension reform that
starts with a constitutional amendment to allow changes to unearned,
future benefits. Changes should include raising retirement ages for
younger workers, capping maximum pensionable salary, and doing away
with guaranteed permanent benefit increases in favor of a true cost
of living adjustment pegged to inflation.
The alternative is a future in which state and local governments ask
taxpayers to pay more for less, calling for tax hikes while cutting
services to pay for pensions. This is already happening in cities
including Harvey, Peoria, Rockford, Jerome and Chicago, just to name
a few.
The concept of future benefit reforms is similar to pension reform
measures successfully passed through the General Assembly earlier in
Emanuel’s term, with help from the mayor and negotiations with labor
unions. Unfortunately, Illinois’ Supreme Court struck down those
reforms, placing Chicago and other cities across Illinois in
financial handcuffs.
Emanuel is right to go after the root cause of the pension problem
in his call for an amendment.
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