|
 Illinois lawmakers are trying to stop the Chicago Park District
pension fund from becoming insolvent, but their solution mainly creates more
debt and takes more taxes without fixing the real problem.
Lawmakers passed House Bill 417 and Gov. J.B. Pritzker is expected to sign it,
giving the park district additional borrowing authority and the ability to raise
property taxes in excess of usual statutory caps. While it does increase
employee contributions for new hires, it includes no changes to benefits for
current workers and retirees and lets workers retire two years earlier, falling
far short of the structural benefit reforms needed to stabilize Illinois’
pension systems.
Pension debt is the No. 1 fiscal crisis facing Illinois. Illinois’ pension
crisis is the nation’s worst. Illinois has a less than 40% funding ratio for its
pension plans while the nation’s average is over 70% as of 2018. Pension debt
estimates reached $317 billion in 2020 and the state pension systems consumed
over 25% of all state revenues.
While those are the state’s pension issues, Chicago has big problems as well.
 The current condition of the Chicago Park District pension system is dire, with
over $800 million in unfunded liabilities and only a 30% funding ratio. In its
current state, it will run out of funds in 2027. Significant reforms were
successfully enacted in 2014, only to be struck down by the courts as
unconstitutional because they made changes to existing pension benefits.
The 2014 reforms, passed in Public Act 98-0622, attempted to address the pension
crisis by lowering annual cost-of-living adjustments to a more financially sound
level and by increasing contributions by both employers and employees. The
annual adjustments were set to be reduced from a 3% compounding rate that has
far outpaced inflation and employer-employee contributions would have been
brought to a more fiscally responsible rate. Before being declared
unconstitutional, the 2014 reforms provided a model of the type of reforms
Illinois pension systems need.
The new HB 417 does not include structural reforms. It is characterized as a
lasting solution to the park district pension crisis, but does little to address
it aside from increasing taxpayer funding requirements and authorizing more
debt. The bill essentially shifts the entire burden of the Park District’s
fiscal failures onto taxpayers and fails to change how benefits or employer and
employee contributions are determined.
[to top of second column] |
HB 417 includes provisions that are good and bad
for the park pension’s future: increasing funding for the pension
system, allowing more bond issuance by the park district pension,
allowing property tax hikes in excess of statutory caps for debt
service on that bonding authority, lowering the retirement age by
two years and increasing employee pension contributions by 2% for
new hires.
While reducing pension debt and raising the funding
ratios of the systems are important goals, throwing money at the
problem is not a sustainable long-term solution. Illinois’ pension
issues stem from generous benefits that are unaffordable to
taxpayers, the primary funding source for public pensions.
The bill allows for a total of $250 million in additional bond
issuance. While proponents argue this is a good way to offer the
pension system some leeway when there is a downturn in the market,
it is dangerous to rely on bonds to fund other liabilities.
Essentially, it becomes a gamble with taxpayers’ money, seeing
whether the pension’s investments can return more than the interest
on the bond, a strategy that has a history of failing.
While increasing employee contributions by 2% is an important and
necessary step in reducing the financial strain on the pension
system, it is hardly enough to stem the crisis. Additionally, it is
partially offset by lowering the retirement age so workers are on
the retirement plan an extra two years.
The pension problem cannot be solved simply by tweaking
contributions for new hires and throwing more money at the funds.
Without fundamental changes to how pension benefits are determined
and how much money employees and employers put in, the services and
resources residents rely on will be the next sacrifice.
Amending the state constitution to allow for changes to future
benefit growth for current workers and retirees is key to creating a
sustainable pension system that preserves other Chicago services. It
would allow the types of changes courts declared unconstitutional
from the 2014 reforms.
Structural reform does not need to include reductions in benefits
already promised. Rather, it should mean keeping future benefit
growth to sustainable levels. Pension reform should both end the
pension crisis and keep promises made to public servants and
retirees |
