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PRITZKER
TO DECIDE COLA INCREASE FOR CHICAGO FIREFIGHTER PENSIONS, WITH $850M
PRICE TAG
Illinois Policy Institute/
Adam Schuster
Over
the objections of Chicago Mayor Lori Lightfoot, who called the
legislation “irresponsible,” state lawmakers passed a bill to increase
the cost-of-living adjustment for 2,200 Chicago firefighter pensions to
3% from 1.5%. Gov. J.B. Pritzker should veto it. |
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Illinois Gov. J.B. Pritzker will soon see House Bill 2451,
which intends to enhance cost-of-living adjustments, or COLAs, for Chicago
firefighter pensions. Chicago Mayor Lori Lightfoot opposed the bill and called
it “irresponsible,” according to the Chicago Sun-Times. The city estimates it
will cost an average of $30 million per year and $850 million over 35 years.
“Mayor Lightfoot believes strongly that we must work toward a comprehensive
pension solution which keeps the promises made to retirees and which sets
pension funds across the state on a path to solvency,” according to a statement
from the mayor’s office.
Chicago residents are on the hook for nearly $45 billion in pension debt, which
is more than the total pension debt held by 44 U.S states. The firefighter
pension fund is in the worst shape, with only 18% of the money on hand needed to
pay promised future benefits.
As Lightfoot stated, reform is needed if pension promises are
to be kept and the funds made solvent. A constitutional amendment allowing
lawmakers to lower the growth rate of future pension benefits is the only way to
achieve those goals. Further sweetening pension benefits without creating
reforms would aggravate the problem that is wrecking the city’s finances.
If Pritzker were to sign the bill, it would increase COLA benefits for 2,200
active Chicago firefighters to 3% non-compounding. It passed 72-40-1 in the
House in 2019 and 37-14-1 in the Senate on Jan. 11 during the lame duck session.
Until the bill is signed, firefighters born after Jan. 1, 1966, were entitled
only to a 1.5% simple post-retirement annual benefit increase.
State Sen. Rob. Martwick, who sponsored HB 2451, promoted it as a transparency
measure. He claimed in a press release that it “shines a light on the true
financial condition” of the Chicago firefighter pension fund and would prevent
the city from further “kicking the can down the road.”
In reality, the legislation adds millions in costs that are likely to be passed
on to Chicago property taxpayers, who are already overburdened. The city has few
other options to raise taxes and fees. It grapples with consistent, growing
deficits.
Residents were hit with $864 million in annual tax hikes during former Mayor
Rahm Emanuel’s administration, including $543 million in property tax increases,
primarily to cover rising pension contributions in the city budget. Lightfoot’s
latest budget includes a $94 million property tax increase and $38 million in
fine and fee increases. Some of that revenue comes from an aggressive new
ticketing policy, which uses automated cameras to catch drivers going just 6 mph
over the posted speed limit.
Martwick’s claim about transparency stems from the fact that the birthdate
restriction – used to determine which pensioners receive 1.5% COLAs and which
receive 3% – had been previously moved to include more retirees. Originally,
only those born before 1930 were eligible for the higher COLA, but that was
moved three times before landing at 1966 in 2016. The city continued to
calculate its annual costs based on the lower COLA, meaning it was not
contributing toward the benefit increases it was paying out, growing the debt.
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But rather than expanding pension benefit
increases, Chicago should commit to setting pension benefits at a
sustainable and affordable level. Lightfoot’s office pointed out
that raising benefits now passes on a “massive, unfunded mandate to
the taxpayers of Chicago at a time when there are no extra funds to
cover this new obligation.”
Pension costs will consume $1.82 billion of
Chicago’s $12.76 billion budget in fiscal year 2021, or more than
14%. Annual contributions to city pension funds were already
projected to rise by $1 billion during the course of Lightfoot’s
first term in office. The effect of COVID-19 on pension fund
investments will likely drive pension costs higher and faster than
projected, plus city revenues are taking a hit from the pandemic.
If Pritzker approves this firefighter COLA increase, it will add
further to pension expenses.
Despite all the tax and fee hikes, Chicago’s budget has not been
balanced since 2003. The fiscal year 2020 budget ended $800 million
in the red and Lightfoot faced a $1.2 billion deficit for fiscal
year 2021. It is virtually impossible to close Chicago’s long-term
structural budget deficit without changing the Illinois Constitution
to allow pension reform that slows the growth in future benefit
increases.
Lightfoot has sent mixed messages on pension reform, often
acknowledging the depth of the problem and calling for change while
failing to provide specifics. She has criticized 3% compounded
post-retirement annual raises as “unsustainable,” but has not
publicly endorsed a constitutional amendment, which is the only way
to change them. Those compounded increases are available to members
of the municipal and laborer’s pension funds, while public safety
COLAs are non-compounding.
Emanuel went farther than Lightfoot toward the end of his term,
calling on Springfield to send a pension reform amendment to the
ballot for voter approval. This endorsement likely carried less
weight because it was issued after Emanuel decided not to run again.
The General Assembly tried in 2013 to fix government pensions, but
the Illinois Supreme Court ruled changes cannot happen unless the
Illinois Constitution is amended.
Voters in Chicago and throughout Illinois deserve the opportunity to
vote on a pension amendment, which would help to lower property
taxes while freeing up revenue for critical services needed by the
state’s most vulnerable residents. It’s the only realistic option to
dig out of the financial hole caused by unsustainable pensions.
At the very least, lawmakers should stop digging the hole deeper and
Pritzker should take away this shovel.
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