Bill to boost Chicago police pensions would cost taxpayers $3 billion
Gov. J.B. Pritzker signed a bill to boost Chicago firefighter cost-of-living increases last year, costing taxpayers $850 million. Despite Mayor Lori Lightfoot calling it “irresponsible,” a new bill would do the same for city police at more than triple the cost.
Chicago’s pension crisis is the root cause of the city’s financial problems and high taxes, leaving city taxpayers on the hook for more pension debt than 45 U.S. states. Still, a proposal in Springfield would boost cost-of-living adjustments for retired police officers, costing taxpayers an additional $3 billion in pension expenses through 2055.
Senate Bill 2105 closely mirrors House Bill 2451, last year’s Chicago firefighter pension enhancement bill. The city estimated that legislation would cost an average of $30 million per year and $850 million over 35 years. Mayor Lori Lightfoot opposed the bill, calling it “irresponsible.” Gov. J.B. Pritzker signed it over her objections.
The legislation would eliminate a requirement that police retirees be born before 1966 to be eligible for a 3% automatic annual increase in payments. It also includes increasing survivor benefits and pension enhancements for so-called “Tier 2” employees, those hired after 2011 under a new benefit structure. Passing this bill would increase the city of Chicago’s pension debt burden significantly and would compound the harm done by increasing COLAs for firefighters.
The city has been struggling to keep up with its pension promises for decades. Promising more benefits to more workers with no means of funding them makes that task harder. The eight funds Chicago taxpayers are responsible for hold $46.9 billion in unfunded liabilities, more pension debt than 45 U.S. states.
Chicago’s police pension fund has only 22 cents saved to cover every $1 in existing promises. Adding to that burden would only worsen the funded ratio for the system and place the retirement security of police officers at greater risk of insolvency. The city’s firefighters’ pension fund has even less money available to pay promised benefits at just 18 cents for every $1 of obligations.
Changes were made last year to the city’s pension fund for park employees as the system, slightly better-funded than police or fire funds, was projected to go insolvent by 2028. Together, the city’s eight pension systems are just 34% funded, below the threshold of 40% experts consider a “point of no return” for pension fund viability.
Lightfoot has previously acknowledged the need for pension reform and has specifically called recent COLA increases for other city systems – which mirror the state’s – “unsustainable.” A constitutional amendmentallowing lawmakers to lower the growth rate of future pension benefits is the only way to make the systems sustainable, but Lightfoot has always stopped short of endorsing a specific solution to the city’s pension problem. Further sweetening pension benefits without reform would only aggravate the problem, wrecking the city’s finances and increasing tax burdens on residents.
Chicagoans have already paid a high price for pensions; residents were hit with $864 million in annual tax hikes during former Mayor Rahm Emanuel’s administration, including $543 million in property tax increases, primarily to cover rising pension contributions in the city budget. Lightfoot’s office has pointed out raising benefits now passes on a “massive, unfunded mandate to the taxpayers of Chicago at a time when there are no extra funds to cover this new obligation.” Chicago’s total retirement contributions for fiscal 2022 will increase to $2.3 billion across its four funds, jumping nearly $460 million from 2021 and amounting to 21.4% of all local revenues.
The city is currently reviewing bids for a casino in Chicago and plans to dedicate tax revenue from the gambling proceeds to police and fire pensions. Such drastic measures should not be necessary to provide pension payments to public workers. Building a casino in downtown Chicago would provide some new revenue for the deeply troubled pension funds, but the current pension system will remain unsound and unsustainable without structural reform.
The passage of the firefighter COLA bill last year only served to create further harm to taxpayers and the city’s finances, and passing the police COLA will only make things worse. Chicago is already facing a monumental task in paying down city debts without harming the economy with further tax hikes.
Springfield shouldn’t be making that task harder by adding massive unfunded fiscal mandates to Chicago’s struggling public pension funds.