Rahm’s Union Problem
The City of Chicago recently released its Annual Financial Analysis 2012: 85 pages detailing the city’s awkward financial position. There are two sections worth highlighting. The first deal with public employees in general, the second has to do with pensions. The city’s workforce is getting small but more expensive: dropping from almost 42,400 full-time-equivalent positions in...
The City of Chicago recently released its Annual Financial Analysis 2012: 85 pages detailing the city’s awkward financial position. There are two sections worth highlighting. The first deal with public employees in general, the second has to do with pensions.
The city’s workforce is getting small but more expensive: dropping from almost 42,400 full-time-equivalent positions in 1993 to fewer than 33,800 FTEs in 2012. But at the same time per-employee costs have skyrocketed from $58,299 in ’03 to $96,082 in ’11. So while the city cut its workforce by about 20 percent, per-employee costs have gone up by better than half. Add it all together and you have labor costs for the city as a whole increasing by 14 percent.
And employee costs really drive the City of Chicago’s budget; by the city’s own calculations 74 percent of expenditures over the last nine years have been personnel related.
The state of the city’s four pension funds is, well let’s just say that since this is a formal report Mayor Emanuel cannot make use of his usual bluntness, but the point gets across anyway: the best of the four (which unfortunately happens to be the smallest of the four in terms of payments it is expected to pay out) has only 61 percent of the assets it ought to hold to be able to pay expected benefits – barely out of what is widely considered to be the pension crisis zone. The firefighter and police pensions have only 26% and 33% of the assets they should. The city’s largest pension fund, which covers most city employees (outside off public safety) as well as some non-instructional public school employees, has about 41 percent of the assets it will need to be certain of paying benefits on time.
According to Rahm’s budget wizards, the city will need to increase its pension fund contributions from $476 million this year to $1.2 billion in 2015. With revenues expected to remain well below $3 billion, coming up with the needed money will present something of a challenge.
As for what to do about this, the report has some strong hints. “The increase in personnel expenses over the past decade has been due in large part to salary increases resulting from contractual obligations under collective bargaining agreements with the unions that represent the vast majority of City employees.” It would appear that the mayor could use some relief from the unions.
As far as pensions go the report is quite direct: “Given the size of the unfunded liability and the dollar amount that would be required to fully fund, even over many years, tax increases and service reductions cannot be the complete answer”. The report then concludes by endorsing changes to cost-of-living adjustments, increased employee contributions, later retirement ages, and “offering more retirement security choices to new employees, in line with private-sector practices”. All of these will mean unions making concessions either at the bargaining table or at the statehouse.
One has to assume that Mayor Emanuel signed off on this report: he may not have done the math but he approves of the conclusions and insinuations. For decades government employee unions in Chicago and across the nation have driven up employee costs, and at the same time have failed to make sure that governments have socked away enough money to pay pension benefits. And now the bills are coming due, and even an establishment Democrat like Chicago Mayor Rahm Emanuel has to take note of the unions that are behind so many of the city’s financial problems.