Cook County’s pension reform flop

Cook County Board President Toni Preckwinkle struck a pension deal for county employees earlier this month. The plan recently materialized into legislation that quickly moved through the Illinois Senate, but has not passed in the Illinois House. Preckwinkle’s plan fails to fundamentally reform pensions and may result in massive tax and fee increases, a reduction...

Cook County Board President Toni Preckwinkle struck a pension deal for county employees earlier this month. The plan recently materialized into legislation that quickly moved through the Illinois Senate, but has not passed in the Illinois House.

Preckwinkle’s plan fails to fundamentally reform pensions and may result in massive tax and fee increases, a reduction in county services or a combination of both.

Cook County’s pension fund has 56 cents for every dollar it should have in the bank today to pay out future benefits. The pension fund will become insolvent in 2038 if it continues down its current path.

In attempts to prevent that, Preckwinkle’s plan includes massive cash infusion into the county’s pension system. The county’s pension contributions would increase to about $350 million in 2016 from $200 million today.

Preckwinkle hasn’t said how she is going to pay for the near doubling of the county’s pension contribution. But the bill does allow the county to cover the payment with property taxes and other county resources. Ultimately, the pension deal on the table would provide temporary relief to the county budget. But beyond short-term relief, the deal does nothing to actually reform how the county runs its retirements for city workers.

Here are four areas where Preckwinkle proposal falls short:

1. It allows for property tax and fee hikes. The pension bill allows for a massive property tax increase to cover the county’s pension payments going forward. The bill specifically states: “Beginning with the year 2016 and for each year thereafter, the county may levy a tax annually at a rate… that will produce, when extended, not to exceed an amount equal to the total amount of the County contributions required for that year.”

The bill also allows the county to make pension payments with revenue sources and available funds other than property taxes. That means the county may start taking funds for services and use them to pay for pensions.

The bottom line is that Cook County residents could be forced to shoulder higher pension payments with property tax and fee increases while receiving fewer services. Cook County residents already live in a state with the second-highest property taxes in the nation. Higher taxes will only chase more Cook County residents out of the area.

2. City workers will have to pay more into a broken system. The pension bill increases the amount workers contribute to their pensions. Worker contributions increase to 9.5 percent in 2015 and again to 10.5 percent in 2016, a two percentage point increase from the 8.5 percent paid today. It’s not fair to the workers who are forced to contribute more but are unsure there will be any money left by the time they retire.

3. Maintains political control. Politicians will still control Cook County’s pension systems, even though they’ve run them into the ground through decades of mismanagement.

4. Mixed bag of half-baked benefit changes:

• Cost-of-living adjustments, or COLAs, are frozen in 2016 for all retirees. Going forward, no COLA payments are paid if the pension-funding ratio drops below 59 percent. COLA payments will range from 2-4 percent if the funding ratio exceeds 59 percent. And COLA payments range from 3-4 percent if the funding ratio exceeds 100 percent. Reforming COLAs is the single-largest lever for reducing the county’s pension debt and ensuring there is sufficient funding to pay for already-earned benefits. But Preckwinkle’s plan largely maintains these payments going forward.

• Retirement ages are increased on a sliding scale by as much as five years. That means many Cook County workers are still able to retire in their 50s while collecting most of their final average salary. This will continue to put a tremendous strain on the county’s taxpayers, as well as the pension systems.

• The Service Accrual Rate is reduced to 2.3 percent from 2.4 percent.

• Final average salary is currently calculated based on the highest four years of the last 10 years of work. Going forward, that would change to the highest eight years. This attempts to lessen the impact of pension spiking but doesn’t actually prevent it.

The bottom line is Preckwinkle’s proposal buys Cook County a short reprieve at the expense of taxpayers and workers. Cook County doesn’t need – and cannot afford – more stop-gap proposals like this.

The first essential step to real reform is to take control of retirements away from politicians and put it in the hands of city workers. That’s the only way to end the perennial mismanagement of Cook County’s city worker pensions.

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