In addition to continuing to seek a pension holiday for the
Chicago Public Schools (See my 6/3/13
piece, THE PENSION DEBACLE IN ILLINOIS: MR. MADGIAN AS MACHIAVELLI, MR. EMANUEL LOSES A ROUND, OR MR. QUINN GOES TO SPRINGFIELD?), Mayor Rahm Emanuel is working with his apparently favorite
legislator, Illinois Senate President John Cullerton, to delay payments by the
city into pension plans for its workers, including those covering its fire
fighters and police officers. The plan
would postpone the date on which Chicago
falls off its own fiscal cliff by having to increase annual pension
contributions to $1.1 billion in 2015 from $483mm in 2014. The bill would delay any pension related tax
increases until 2018, not coincidentally until after Mr. Emanuel is safely
reelected, and any meaningfully increased pension contributions until 2022,
after Mr. Emanuel is safely, one presumes, in the White House. The bill would give the city further breathing
room by postponing the date by which the pension plans must be 90% funded from
2040 to 2061, by which time yours truly, and most of you, will be safely into
the next life.
The obvious objection to this plan, which faces rough
legislative sledding, to say the least, is that further delaying addressing the
problem is not a good solution to a problem that has arisen from delaying
addressing the problem. The pension
liabilities will continue to grow, even if concessions are made by the unions,
and if the city doesn’t put money behind its promises, the unfunded portions of
those liabilities will continue to grow.
Right now, the police pensions are 31% funded, the fire fighter pensions
are 25% funded, and the pensions for all city employees are 35% funded. These numbers are pathetic on their faces,
but they are also the lowest of what are, for the most part, pathetic numbers
for cities across the country. The
problem will get worse if the Emanuel/Cullerton plan somehow gets passed.
There are further objections to the plan that perhaps aren’t
so obvious. The first is that delaying
the 2015 $600mm day of reckoning not only obviates the massive property tax
increase it would necessitate but also frees up other money. For the politicians, this is terrific
news…more money to blow on getting reelected and making good their IOUs to
campaign contributors. But for the
taxpayers, this is not such good news.
Spending commitments tend to become permanent and must be funded by
taxpayers. Giving the politicians more
money to spend ultimately, and more quickly than the adverb “ultimately”
implies, results in more money from taxpayers.
Money that doesn’t go into paying pensions doesn’t get squirreled away
to meet such obligations later; it gets blown.
And we have seen this Mayor’s propensity to spend money. Even though we are broke, we seem to have
plenty of money for basketball arenas, new schools that serve Rahm’s yuppie
constituency, NATO summits, etc. Give
this guy a dollar and he’ll spend five, just like any politician, but, in
Rahm’s case, with both more aplomb and more gusto.
The other less obvious objection to escaping the $600 mm day
of reckoning, and the property tax increases it will necessitate, is that such
evasion confirms the impression that the city will never abide by any of the
promises it makes to dig itself out of its fiscal hole. This $600mm 2015 day of reckoning itself is
the result of a deal the Richard II made years ago, the last time pension
funding threatened to blow up the city budget.
The second Daley administration managed to codify into state law a plan
to gladly pay tomorrow for a hamburger today, if you will, by promising to
contribute $1.1 billion to city pensions in 2015. It is quite clear that the Daley
administration had no intention to pay that $1.1 billion and was merely, to use
a variation on a trite expression, kicking the can down the alley a bit. While the plan outlined by Senator Cullerton
and Mayor Emanuel is much more reasonable (but not nearly as efficacious) as
the Daley plan, does anyone believe that whatever administration is in power at
the times its measures are to be implemented will really go along with it?
I don’t believe the city when it says it will be good
tomorrow if we only let it evade its responsibilities today. You shouldn’t either. Surely the bond rating agencies won’t believe
the city. But I am not concerned so much
about the bond rating agencies; I am concerned about the investors who buy the
city’s bonds. Detroit
didn’t get into trouble when it was downgraded by the rating agencies; Detroit
got into trouble when no one would lend it money.
See my two books, The Chairman, A Novel of
Big City Politics and The Chairman’s Challenge,
A Continuing Novel of Big City Politics, for further illumination on
how things work in Chicago and Illinois politics.
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