Emanuel’s Pension Fix Pushes Payments Into Future

Rahm Emanuel’s new approach to dealing with Chicago’s police and fire pension costs involves pushing city contributions into the future – past Emanuel’s term – and won’t involve any benefit cuts.

Those two factors could make it difficult for Governor Rauner to sign off on the proposal, as he has expressed the desire to achieve reform through benefit cuts while avoiding a “kick the can” approach to contributions. If he doesn’t approve the bill, Chicago will face $538 million in police and fire-related pension costs in 2016.

From the Chicago Tribune:

[Under Emanuel’s plan]: Instead of paying the additional $538 million, the city would put in $319 million more next year. That’s still a big increase, but it doesn’t carry quite the shock. For the next four years, the city would have to come up with smaller increases ranging from $32 million to $65 million.

But Emanuel’s plan also includes another big hit. In 2021 — two years after Emanuel’s current term ends — whoever is mayor of Chicago will have to come up with an additional $137 million for police and fire pensions.

That pushes off further tough decisions about taxes and spending cuts until well after the next city election in 2019. All told, during the rest of Emanuel’s second term, city payments to the police and fire funds would increase by about $1.6 billion. That’s $713 million less than under current law.

In addition, the mayor wants to stretch out the city’s payment plan, taking 40 years instead of 25 years to grow pension fund balances to 90 percent of what’s needed to pay future benefits.

If those tactics sound familiar, it’s because they’re similar to what got both city and state government into their pension messes in the first place: delaying payments and extending them over a longer period of time, pushing up the overall cost over time.

Click here to see a chart of Chicago’s pension contributions through 2020, as they stand now.

Photo by bitsorf via Flickr CC LIcense