Former mayor Rahm Emanuel warned before leaving office that Chicago was facing a financial abyss.
The city cannot afford to pay the escalating costs of its retirement bills and continue to provide essential services to Chicago residents, including policing and fire protection, Emanuel said.
After delaying Judgment Day for decades, the city’s payments to its four pension funds are set to increase dramatically starting in 2020 to ensure the funds can make pension payments to employees when they retire.
Emanuel’s solution: Borrow $10 billion at a low interest rate and secure decades of savings. Emanuel likened it to refinancing your mortgage at a lower rate, and a low-cost way to meet the terms of a state law is to fund 90% of the city’s pensions by 2045.
But the lame mayor’s proposal went nowhere — especially after federal agents raided Ald’s 14th District office. Ed Burke, then chairman of the finance committee, forced him to resign.
Mayor Lori Lightfoot has often shared the shock she felt when she took office in 2019 and was given a full view of the city’s budget, which included an $838 million deficit. The city’s financial stability – already precarious – took a significant hit when the COVID-19 pandemic triggered an economic meltdown from which the city is still struggling to recover.
More than a year ago, Lightfoot warned that the two crises could be mutually reinforcing and prevent them from achieving their goal of making Chicago a more attractive place to live, work and play for residents and visitors alike by promoting equity and opportunity raise.
Lightfoot, who is now running for re-election, sees only blue skies ahead for Chicago’s finances. Chicago will not only deliver on its promise that the city will have the “best economic recovery of any major city in the country” from the COVID-19 pandemic — it will do so after climbing the so-called pension ramp — without adding additional billions to what it already has the city’s already massive debt burden or cuts in services, the mayor said.
“That means we’re paying back what we owe,” Lightfoot said last week, revealing the city’s budget projection for 2023, 2024 and 2025. “That’s huge.”
The ramp was steep — but the climb avoided meeting predictions made in 2011 that two of the city’s four pension funds would default by 2026.
In 2019, Chicago paid more than $1.31 billion to its four pension funds, which benefited police officers, firefighters, city employees, and workers.
In 2023, Chicago will pay more than $2.34 billion to the same four funds — more than an additional $1 billion directly from the city’s taxpayers than three years earlier.
The city’s 2023 pension bill is $92.3 million higher than Chicago’s 2022 pension bill. That might seem like a significant increase — but it’s dwarfed by the nearly $461 million that the pension bill will account for of the city between 2021 and 2022, the last year in which the state law will take full effect.
That’s an indication Chicago has started to get its pension debt under control and doesn’t have to contend with massive hikes in its pension bills, Chief Financial Officer Jennie Huang Bennett said.
Even so, the city’s pensions remain a large expense for its corporate fund, which officials use to fund voluntary spending. That $478.5 million bill — $149.3 million more than 2021 — will be partially met by Bally’s $40 million in exchange for city council approval of their plan to open a casino and resort in River North build, green light and a temporary casino set open next summer in Medinah Temple.
Lightfoot has also proposed a $42.7 million property tax increase to offset the rising cost of inflation and earmarked it for the city’s pensions.
Overall, Chicago owes its four employee pension funds, which represent police officers, firefighters, municipal employees and workers, $33.7 billion, according to the 2021 annual comprehensive financial report.
That’s a 2.2% jump from 2020, the smallest jump in three years, according to the report.
Lightfoot said she’s particularly proud that 2021 marks the first year in about 25 years that the assets of all four of the city’s pension funds have grown.
However, according to the city’s annual financial report, all four funds are still significantly underfunded.
The fire brigade fund has the lowest financing rate of the four at 21%; According to the city’s annual financial report, the workers’ fund has the highest financing rate at 46%.
For more than a year, Lightfoot hasn’t mentioned what she describes as the biggest problem facing Chicago’s pension funds: the 3% annual cost-of-living increases that feed into the city’s pension payments
In 2019 – when interest was near historic lows – Lightfoot called those increases “unsustainable” and faced a firestorm of criticism from organized labor. In May 2021, Lightfoot said the city’s pension system was “unviable in its current state” and that the promises made by generations of city workers were under threat.
Lightfoot’s tone was very different this year, calling Chicago’s pension obligations “sacrosanct.”
“It’s important to remember that we’ve made promises to our current retirees over the years that must be kept,” Lightfoot said.
With inflation at 9.1% in June, federal data shows 3% cost-of-living increases are a lot less painful than they were a few years ago.
Despite the risks posed by high inflation, the city’s 2021 annual financial report and the city’s budget forecast for the next three years reflect evidence that the city is in much better financial shape than it has been since Lightfoot Emanuel took over and retired has climbed the ramp and survived the COVID-19 pandemic and economic disaster.
That has brought Chicago closer to resolving its longstanding revenue-spending imbalance and achieving structural balance, Huang Bennett said.
A focus of these efforts has been the city’s long-term debt, which totaled $24.1 billion in 2021, according to the city’s annual financial report. Annually, the city pays $2.1 billion in interest on that debt.
Lightfoot credited “better cash flow management” for reducing the city’s debt by $340 million and said total debt savings would reach $866 million by the end of 2023 — allowing the city to expand its infrastructure program and finance the expansion of the social safety net without borrowing Additional funds.
Contact Heather Cherone: @HeatherCherone | (773) 569-1863 | [email protected]