Testimony: Chicago pension systems’ dire finances cannot afford benefit boost

Members of the Illinois Senate Pensions Committee heard from pension administrators and government unions about the need for more benefits from retirement systems that are already broken. The Illinois Policy Institute was there, too, to represent taxpayers’ interests.

The Illinois Senate Pensions Committee on Feb. 19 held a hearing on the status of Chicago’s pension systems. Representatives from the systems and government unions testified, but the only voice on behalf of taxpayers came from the Illinois Policy Institute’s Director of Fiscal and Economic Research Bryce Hill.

Here is what he told the Senate committee about the dire shape of Chicago’s city pensions.

“Chairman Martwick, Vice-Chair Harris and members of the Pensions Committee:

“Thank you for the opportunity to provide testimony on the state of the Chicago pension systems. My name is Bryce Hill and I am in the director of fiscal and economic analysis for the Illinois Policy Institute.

“Protecting the retirement security of our government workers should be at the top of all of our goals. The city of Chicago’s four city-run pension systems are the worst-funded municipal retirement systems in the nation, according to the Equable Institute. The city has less than 24 cents on hand for every dollar of promised benefits and more than $36 billion worth of unfunded pension liabilities. That debt increased by $1.8 billion in 2023 alone, according to the city’s most recent financials, despite the city now spending more than $2.7 billion on pension contributions annually.

“Chicago levies some of the highest property taxes in the nation among large cities, largely to pay for the pension crisis. More than 80% of Chicago’s property tax levy – including all of the automatic annual increase – goes to pensions, and the Chicago Teachers’ Pension Fund, which has an additional $14 billion in unfunded pension liabilities that are not included in the city’s financials, has its own property tax levy specifically dedicated to pensions. In the past decade, the city’s property tax levy has doubled, with all the increase going towards pensions.

“Actuaries often consider systems with funded ratios below 60% to be “deeply troubled” and those with less than 40% may be past the point of no return. Chicago’s four city-run pension systems are less than 40% funded. A significant market downturn could wipe out money people are counting on.

“To protect Chicago’s government workers, it’s pertinent that we study the costs of any changes to the pension systems before we make them. This includes identifying the effect of any changes on funded ratios, unfunded liabilities and additional annual contributions. Without answering any of those questions, we’re simply exposing the whole system to undue risk of insolvency and threatening all participants’ retirement security, while burdening taxpayers with new costs.”