Last year, Mayor Brandon Johnson appointed a pension working group — made up of city officials, pension fund executives and union leaders — to make recommendations on how to address the city’s worst-in-nation pension crisis. We would like to have seen taxpayers’ interests better represented in Johnson’s working group because the stakes could not be higher.
Chicago’s pensions remain in bad shape and are getting worse. For perspective, three of the city’s plans have only enough money to pay out less than four years of benefits. And the latest official reports from the city’s pension plans and those of its sister agencies show a total pension debt of $52 billion, up from $42 billion just five years ago. The city’s shortfall exceeds the pension debt of 46 of the nation’s 50 states and imposes the worst costs per capita of any major American city, by leagues.
The working group’s recommendations can go only in two directions. The group can either get serious about tackling the pension problem, or it can choose to continue the decades of public policy malpractice that got Chicago into this mess. We hope those involved will heed some sage advice — from right here in Chicagoland — and choose the former.
Start with the advice of Cook County Treasurer Maria Pappas and her consistent calls to end the malpractice. In her 2021 debt disclosure letter to Cook County residents, she laid into the gimmickry: “borrowing for annual expenses, issuing new debt to pay off old debt and not paying what’s truly required to fully fund pension systems,” which according to Pappas, “are widely criticized methods of paying government expenses.”
“All of those criticized borrowing practices have been used, to one extent or another, by myriad governments across the Chicago region,” Pappas’ letter says.
Pappas’ transparency, for example, by reporting the city’s overall bonded and pension debt on the first installment of taxpayers’ property tax bills, is another truth-telling effort the working group should embrace.
More good advice comes from the Schaumburg-based Society of Actuaries. The professional organization appointed in 2014 a blue ribbon panel to come up with best practices for public employee pension plans. It strongly recommended plans be 100% funded and, if underfunded, they should return to 100% as fast as possible, in 15 to 20 years. In stark contrast, Chicago is scheduled to take more than 40 years to fund its pensions.
The Society of Actuaries points out that to dump the debt burden out that far creates gross intergenerational inequity, asking those who are children now, and even those yet to be born, to pay for pension costs incurred decades ago.
It also suggests that no benefit increases of any kind be legislated until the plans are fully funded. If that creates a problem for Tier II pensions, then the mayor’s working group should consider offering employees Social Security, which many workers might find more secure, considering the current condition of the city’s funds.
All these actuarially sound rules are admittedly restrictive, which is why we hope the working group doesn’t resort to proposing a pension obligation bond, or POB. The Government Finance Officers Association, another professional organization, headquartered just blocks from City Hall, warns sternly against borrowing money to fund pensions.
If the pension working group is serious about solving Chicago’s crushing pension debt, it’ll take the above advice. The group should show taxpayers what it would take to fully fund the plans in less than 20 years with level annual payments, not the expedient ramps that backload the costs. When Chicagoans see what it will take to seriously solve the problem, then the mayor must do the politically hard work to reform city spending without burdening today’s residents or their future children.
There is plenty of wisdom and work done on best practices right here in Chicago, under the pension working group’s nose. It should take heed.
Ted Drabowski is president of Wirepoints, Josh Bandoch is head of policy at the Illinois Policy Institute, Dennis LaComb is executive vice president of the Technology and Manufacturing Association and Ed Bachrach is founder of the Center for Pension Integrity. Together, they form the Taxpayer’s Pension Alliance.