Chart: Chicago’s Ballooning Pension Contributions

Chicago pensions

Mike Corones at Reuters has produced this graphic showing Chicago’s pension payments until 2020 – and the big spike the city will begin seeing in its contributions in this year.

The city paid $476 million into its pension systems in 2014, but that total will more than double in 2015. But 2020, $476 million will seem like pocket change as Chicago will be on the hook for $1.6 billion.

Chart credit: Reuters

 

Chicago Municipal Pension Looks for CIO

chicago

The Chicago Municipal Employees’ Employees’ Annuity & Benefit Fund is looking for a new chief investment officer to replace Michael Walsh, who left the fund in October for a high-level position at another pension fund.

The desired experience and education requirements for the position, according to the job posting:

*Advanced degree in a business, related major or the CFA designation or commitment to completing the designation are preferred

*Leadership experience in a similar institution, organization or government agency;

experience in a public pension system is desirable

*Good understanding of institutional investment management

*Management of staff experience

*Ability to analyze and evaluate investment managers; solid understanding of and experience with the due diligence process

*Experience working with a Retirement Board, investment consultants, auditors, and actuaries

*Basic technology skills and knowledge

*Experience in management of institutional assets is preferred

*Fundamental accounting skills

*Knowledge of the Illinois Pension Code

The full job posting can be found here.

Application are due on Feb. 25 by 4:30 p.m. central time.

 

Photo by bitsorf via Flickr CC License

On Pensions, Chicago Mayoral Candidates Mum on Specifics

chicago

On Friday, Chicago’s five mayoral candidates debated in front of the Chicago Sun-Times Editorial Board, seeking the newspaper’s endorsement.

Pensions was among the first issues to come up – and while everyone agreed that Chicago’s pension debt needs to be tamed, the candidates were largely mum on specific ways to accomplish that goal aside from a few tax proposals.

From the Chicago Sun-Times:

You might think there would be no avoiding the issue that is sure to dominate the next mayor’s agenda.

Unfortunately, a lack of specifics from Mayor Rahm Emanuel has made it easier for the others to dodge as well.

The mayor couldn’t be budged from what I’ll call his “Trust Me” speech in which he recounts his track record on financial matters, which includes more responsible annual budgeting than his predecessors plus legislative deals that reduce pension benefits and increase pension contributions for some city employees and retirees.

With a great deal of prodding, Emanuel acknowledged he’s not ruling out a property tax increase to help bring down the city’s huge pension liability.

[…]

Fioretti, who flatly rules out a property tax increase, is the only candidate ready to put alternative revenue sources on the table. His calls for a commuter tax and/or a financial transactions tax on Chicago’s trading exchanges undoubtedly have some populist appeal.

[…]

At least Fioretti is willing to stick his neck out for something. Cook County Commissioner Jesus “Chuy” Garcia couldn’t have been more vague about what he has in mind, arguing there are still too many unknowns about the scope of the problem until the Illinois Supreme Court has ruled on pension reform legislation.

Garcia also said he opposes reducing pension benefits to current retirees, which was a key part of Emanuel’s pension legislation. That means Garcia would need to find even more revenue.

Chicago voters have just three more weeks to demand real answers.

Watch the video of the debate here.

 

Photo by bitsorf via Flickr CC License

Illinois Supreme Court Pension Ruling May Not Affect Chicago Reforms, Say Lawyers

chicago

The City of Chicago filed a brief with the state Supreme Court last week in support of the state’s pension reform law, in part because the city has its own set of pension reforms that could be impacted by the ruling.

But even a ruling overturning the state’s pension law might not affect Chicago’s own reforms, a lawyer for the city said Wednesday.

From Reuters:

Richard Prendergast, an attorney representing Chicago, told Cook County Circuit Court Associate Judge Rita Novak that the 2014 law for Chicago’s municipal and laborers’ retirement systems would not automatically be voided if the state’s high court later this year determines a 2013 law enacted for Illinois’ sagging pension system is unconstitutional.

He said the state is basing its defense on the need to invoke its police powers to ensure it can fund essential state services. The city has an additional argument that its law does not unconstitutionally diminish pension benefits because without its cost-saving elements and higher contributions the two pension funds would become insolvent within a matter of years, he explained.

“The one thing that is not contested here is these two pension funds are in the toilet,” Prendergast said at a court hearing on the unions’ request for a preliminary injunction to stop the Chicago pension law.

Chicago’s reforms mandate higher pension contributions from workers and the city, as well as reduced COLAs.

Two lawsuits have been filed challenging the constitutionality of those reforms.

 

Photo by bitsorf via Flickr CC License

Chicago Fund Looks To Fill New Deputy Executive Director Position

chicago

The Chicago Public School Teachers’ Pension & Retirement Fund has created a new “deputy executive director” position and is looking for someone to fill it.

The job listing reads:

DEPUTY EXECUTIVE DIRECTOR RESPONSIBILITIES

The Deputy Executive Director will report to the Executive Director and provide support in leadership of functional departments that support Fund operations. The Deputy Executive Director will be actively involved in strategic planning activities. The Deputy Executive Director will advise the Executive Director, Trustees, and other management personnel regarding operational and planning matters.

Key areas of responsibility will include, but will not be limited to: assuring confidentiality, integrity and availability of information and information systems throughout CTPF; ensuring, along with the CFO, fiscal integrity and proper reporting, including the CAFR and budget preparation; planning/coordinating departmental goals and objectives; workforce planning, hiring, evaluating and developing staff; and monitoring Fund operations for compliance with regulations, internal controls and industry best practices.

[…]

REQUIREMENTS

Viable candidates will have significant leadership experience within a public pension system, financial services organization, or other customer service-oriented organization; solid staff management experience; solid fiscal management, budgeting and planning skills; strong project management skills, specifically related to IT initiatives; experience managing external relationships, including legislative ones; working knowledge of institutional investment concepts; and, an understanding of actuarial concepts. An advanced degree is strongly preferred.

FOR MORE INFORMATION / TO APPLY

For more information, or to apply, contact:

Lorraine Gallick

Research Associate

EFL ASSOCIATES

lgallick@eflassociates.com

According to Pensions & Investments, the fund is looking to fill the position by January 1.

The job listing can be found here.

Chicago’s Pension Hole Gets Deeper

Rahm Emanuel Oval Office Barack Obama

A new report from the watchdog group Civic Federation reveals that Chicago’s unfunded pension obligations have tripled since 2003 and now stand at $37 billion.

Details from the report, summarized by the Chicago Sun-Times:

The report found the gap between current assets of the ten funds and pensions promised to retirees had risen to $37.3 billion.

The 10 funds had an average funding level of 45.5 percent in 2012, down from 74.5 percent a decade ago.

The firefighters pension fund is in the worst shape, with assets to cover just 24.4 percent of future liabilities. The CTA pension fund is in the best financial condition at 59 percent.

Government employees did their part by contributing the required portion of their paychecks to their future pensions. But the government contribution fell nearly $2 billion short of the $2.8 billion required to cover costs and reduce a portion of unfunded liabilities over a 30-year time frame, the report concludes.

Investment income didn’t help. And the future outlook is bleak, thanks to a “declining ratio” of active employees to beneficiaries.

In 2012, the 10 funds had 1.11 active employees for every retiree, down from a 1.55 ratio a decade ago. The police, laborers, Metropolitan Water Reclamation District, Forest Preserve and CTA funds all had more beneficiaries than active employees in 2012.

Counting statewide funds, the pension liability amounts to $19,579 for every Chicago resident.

Chicago is required by law to make a $550 million contribution in 2016 to two police and fire pension funds. Mayor Rahm Emanuel presumably needs to raise that money through various taxes. But he has repeatedly promised not to raise property taxes, and more recently said he won’t raise gas or sales taxes, either. From the Sun-Times:

Mayor Rahm Emanuel on Wednesday ruled out pre-election increases in property, sales or gasoline taxes but pointedly refused to say whether he would steer clear of any other taxes, fines or fees.

“We’ve balanced three budgets in a row holding the line on property, sales and gas taxes and finding efficiencies and reforms in the system. . . . We eliminated the per-employee head tax . . . and we put money back in the rainy day fund,” the mayor said.

“On my fourth budget, we will hold the line on property, sales and gas taxes and put money back in the rainy day fund and continue to look at the system as a whole to find efficiencies and reforms and things that were duplicative where you could do better.”

This past summer, Chicago hiked its telephone tax by 56 percent.

 

Photo: Pete Souza [Public domain], via Wikimedia Commons

Emanuel Draws Flak For Retiree Premium Increase

Rahm Emanuel Oval Office Barack Obama

Chicago Mayor Rahm Emanuel increased retiree health premiums by 40 percent this week, and it didn’t take long for his challenger, Bob Fioretti, to criticize the decision. Fioretti, currently an alderman, told the Sun-Times:

“This will place an unsustainable financial burden on our retirees, who are already facing cuts to their pensions,” the 2nd Ward alderman said.

“Our retirees dedicated their lives to making our city work. How does this administration repay them? By breaking its promises and pushing struggling Chicagoans closer to poverty. It’s unconscionable at a time when we should be looking to build our [economy] from the middle out and lifting up our working families.”

Fioretti was asked where he would find the $27 million that Emanuel hopes to save in the city’s 2015 budget by continuing to phase out Chicago’s 55 percent subsidy for retiree health care.

“A lot of this they’ve known was coming down the road for a long time. It’s long-term bad planning. We should work to find ways to fund the promises we made,” he said.

“There are ways — whether it’s looking at a [1 percent] commuter tax [or] complete reform of TIFs — all of those are the real tough decisions we have to make to move this city forward. Those are solutions my administration will find.”

The city defended the premium increase as a fiscal necessity. From the Sun-Times:

Budget and Management spokesman Carl Gutierrez has called the increase “part of our efforts to right the city’s financial ship” and save Chicago taxpayers $27 million in 2015.

“For pre-Medicare retirees, there will be an additional reduction in their subsidy by only 25 percent, and the city is offering four plans to provide them with options for health care and to reduce their costs, including an option that would reduce their premiums,” he wrote in an email.

Bob Fioretti is running against Emanuel in Chicago’s mayoral race. Emanuel’s other main challenger, Karen Lewis, has not yet commented on the premium hike.

Photo by Pete Souza

Chicago’s Emanuel Raises Retiree Health Premiums By 40 Percent

Rahm Emanuel Oval Office Barack Obama

In July, the Illinois Supreme Court ruled that subsidized health care premiums for state retirees were protected under the Illinois Constitution.

But Chicago Mayor Rahm Emanuel challenged that ruling Friday when he increased health insurance premiums for city retirees by 40 percent. The move is part of an ongoing effort to decrease the numerous retirement-related costs that weigh heavily on Chicago’s finances.

Reported by the Chicago Sun-Times:

Mayor Rahm Emanuel on Friday dropped another financial bombshell on Chicago’s 25,000 retired city workers and their dependents: their monthly health insurance premiums will be going up by a whopping 40 percent — in spite of a pending lawsuit and a precedent-setting Illinois Supreme Court ruling.

Last year, Emanuel announced plans to save $108.7 million a year by phasing out the city’s 55 percent subsidy for retiree health care and forcing retirees to make the switch to Obamacare.

For the city, the Year One savings was $25 million. For retirees, that translated into an increase in monthly health insurance premiums in the 20 percent and 30 percent-range.

On Friday, city retirees and their dependents got hit again — only this time, even harder. The city notified them of a 30-percent to 40-percent increase that will cost most of the retirees between another $300 to $400 a month.

Retirees and other observers expressed genuine surprise at the move, especially because it comes on the heels of a court ruling that appeared to protect against such policy actions. From the Sun-Times:

The [40 percent] increase stunned Clinton Krislov, an attorney representing retirees in a marathon legal battle against the city and not only because health care costs appear to be “flattening,” as he put it.

What’s even more surprising is the fact that Emanuel is forging full-speed ahead with his phase-out of the 55 percent city subsidy, in spite of a July court ruling that could tip the scales against the city.

The Illinois Supreme Court ruled then that subsidized health care premiums for state employees are protected under the Illinois Constitution and that the General Assembly was “precluded from diminishing or impairing that benefit.”

City retirees have a similar lawsuit pending that Krislov expects to result in a similar outcome.

“Restraint might have been called for until the case is over, but restraint doesn’t seem to be the plan here. The plan is to wean retirees off the city subsidy and have them off entirely by Jan. 1, 2017,” Krislov said late Friday.

The city released a statement Friday, saying the increased premiums would help to “right the city’s financial ship.”

Emanuel has promised to avoid raising taxes, particularly property taxes, before this year’s election.

 

Photo: Pete Souza [Public domain], via Wikimedia Commons

For Chicago, Property Taxes Still A No-Go As City Turns Elsewhere to Fix Pension Pains

ct-met-0129-chicago-pension-debt-gfc
Source: The Chicago Tribune and Morningstar

In Chicago, property taxes are among the most politically unpalatable ideas one can bring to the table.

But Illinois law requires the city to dramatically increase its payments to its two major pension funds to the tune of $500 million by 2016. In the past, the city has levied property taxes a year or two in advance of the payments in order to fund the required contribution.

One glance at Chicago mayor Rahm Emanuel’s actions of late, however, confirms that property taxes remain off the table. Tasked with improving the fiscal health of the city’s pension systems, Emanuel is exhausting all his policy options—without turning to property tax increases.

From the Chicago Tribune:

Since taking office in 2011, Emanuel has cut the size of the city workforce, reduced health care costs and found other efficiencies, like organizing garbage collection by grids rather than a ward-by-ward basis.

The mayor also has increased a host of fees, fines and taxes. He’s held the line on property tax hikes at City Hall, though Chicago Public Schools has increased them under his tenure. Some revenues, like real estate property taxes, sales taxes and income taxes, have rebounded slightly as the economy has slowly improved.

Emanuel previously declined to identify any way to come up with additional city revenue for the city worker and laborers funds until he had worked out an overall pension change plan this spring that lowered annual cost-of-living increases for retirees and boosted employee pension contributions. He’s taking the same approach to police and fire pensions by declining to discuss additional revenue before an overall pension change plan is worked out.

Pension360 covered earlier this week a hike in telephone fees that will net the city $50 million this year and next.

Still, Chicago’s budget gap is projected to be around $297 million in 2015. With the $500+ million pension payment looming as well, the pressure is mounting and Chicago officials may have to make some politically unpopular decisions.

City officials can still change their minds and hike property taxes—but the deadline to do so is last Tuesday of December 2015.

Chicago Proposes Telephone Tax to Shore Up Pension Funding

Rahm_Emanuel_Oval_Office_Barack_Obama

Chicago politicians have been putting their heads together in recent months, trying to come up with ways to solve—or at least head off—the outstanding pension obligations that threaten to cripple the city’s finances.

A recent law mandates that the city make lump sum payments into the System each year to the tune of hundreds of millions of dollars. It’s up to lawmakers to find that money.

The first idea to increase was property taxes. But the move is so politically unpalatable that Illinois Pat Gov. Quinn struck a deal with Chicago: in exchange for the promise of no property tax increases, Quinn signed a bill that increased employee contributions to the city’s pension systems while also reducing employee benefits.

Now, many alderman have thrown their support behind a new idea for raising money: a telephone tax. More specifically, a 56 percent increase of the current telephone tax. From the Sun-Times:

Effective Sept. 1, the City Council’s Finance Committee agreed to raise the surcharge from $2.50 to $3.90–$1.40 more-per-month or $16.80-a-year–for every land line and cell phone in Chicago. The tax applied to pre-paid phones will rise from 7-to-9 percent, effective Oct. 1.

A family of four with four cell phones and a land-line would end up paying $84 in additional taxes each year. That’s $34-per-year more than the $50 price of Mayor Rahm Emanuel’s original plan to raise property taxes by $250 million over a five-year period to shore up two of Chicago’s four city employee pension funds.

On Tuesday, the Finance Committee honored the mayor’s promise without a single dissenting vote. That’s how eager they all are to avoid a property tax increase — the third rail of Chicago politics—seven months before the election.

The new revenue–$10 million this year and $40 million in 2015–will be used to “fully-fund” Chicago’s 911 emergency center and the Office of Emergency Management and Communications that runs it, thereby freeing up $50 million “to be contributed for the first payment” to reform the Municipal Employees and Laborers pension funds.

Taxing telephones is politically preferable to raising property taxes, which was the other option to raise funds to pay down Chicago’s outstanding pension obligation. Raising property taxes is a political no-no in the city.

But the telephone tax might turn out to be more costly, to both Chicago residents and the city itself. And some alderman have publicly wondered whether the city and the state are playing a political game. From the Sun-Times:

The fact that some Chicago families could end up paying more did not seem to bother most aldermen.

“Even though it may cost a little more because you have more lines and phones, I’d rather come up with an additional $5 or $10 than to come up with $150 [all at once]. It may not be as much pain monthly as it would be at one time,” said Budget Committee Chairman Carrie Austin (34th).

Budget Director Alex Holt added, “For some people, it may be more costly [than a property tax hike]. For others, it will be less costly. It’s  going to be different for every home.”

Emanuel has emphatically denied that the phone tax was part of a political “shell game” to get past the Nov. 4 gubernatorial election and the Feb. 24 city election for mayor and aldermen, then sock it to taxpayers.

Ald. Scott Waguespack (32nd) said Tuesday he doesn’t buy it.

“We had this whole property tax issue on the table. Then, I thought I saw somebody [Emanuel] specifically say we’re holding it off for a year. Which means, it’s back on the table after the election,” Waguespack said.

“So, this is just to me sort of a short-term fix. It doesn’t solve the bigger structural problems we have. And it doesn’t put any other solutions on the table that we’ve had three years of talking about and haven’t proposed anything.”

Chicago’s largest fund, the Chicago Municipal Employees Annuity & Benefit Fund, was only 37 percent funded as of December 2012, according to the fund’s most recent annual report.

 

Photo: Pete Souza [Public domain], via Wikimedia Commons