Democratic Gov. Pat Quinn on Monday signed into law a measure that would cut pension benefits and raise retirement ages for some City Hall workers, granting Mayor Rahm Emanuel a victory but opening himself up to attacks from Republicans who contend the move will trigger property tax hikes in Chicago.
While the new law requires the city to come up with more money to repair its retirement systems, Emanuel told the Tribune that he will not push the City Council to vote for a property tax increase this year and will look for other ways to find the pension cash. That vow provides political cover for Quinn, who is seeking re-election in November, as well as the mayor and aldermen, who face election early next year.
Still, the measure is far from a cure-all. Employee unions vowed to sue to block the changes, which they contend are unconstitutional. Even if the law passes legal muster, it does nothing to fix the pension funds for police officers and firefighters. That’s a bigger short-term problem for Emanuel, who by 2016 must pay nearly $600 million more into those funds, a chunk so large it could trigger tax increases, service cuts, borrowing or some combination of the three.
Quinn’s signature came on the last day he had to act on a proposal that presented an election-year political quandary for him. The governor had campaigned on reducing property taxes, which he says are regressive and unfair. For months, Emanuel had said property taxes were the way to pay for the pension plan.
So Quinn took his time, reviewing the bill as aldermanic opposition to a property tax hike built up. Meanwhile, Emanuel pushed through the General Assembly a last-minute measure that will allow the City Council to vote to raise 911 taxes on cell phones and land lines by $1.40 a month, to $3.90. That could generate as much as $50 million, putting off the need for a property tax increase until after next year’s city elections. Last Friday, Quinn signed that bill into law.
Sources said the 911 fee hike was not negotiated directly with Quinn to win his support for the pension bill, but was designed to demonstrate that Emanuel was willing to look at revenue sources besides a property tax increase, at least in the budget he’ll submit this fall.
Emanuel sought to underscore that point Monday. “Property taxes, as it relates to this agreement, are off for year one,” he told the Tribune.
The Democratic governor was in a tough spot: issue a veto and anger Emanuel or sign the bill and get ripped by Republican governor challenger Bruce Rauner, who wasted little time laying into Quinn.
“I would have vetoed this law — but Pat Quinn likes to raise taxes and left homeowners holding the bag again,” Rauner said in a statement. “This should have been a no-brainer – veto the bill, don’t squeeze Chicago families even more.”
Rauner has said the measure didn’t do enough to move workers into a 401(k)-style system, but the first-time candidate has provided few details about his own ideas for changing the pension systems.
With the governor and the mayor on the same page, at least for a day, Emanuel came to Quinn’s defense.
“Bruce Rauner needs to learn that there is a difference between running for office and actually serving. The economic future of the state's largest city and the retirement of 60,000 workers is not a political football to be tossed around,” Emanuel said in a statement. “Gov. Quinn today stood up for Chicago. Bruce Rauner has merely confirmed his unwillingness to do so.”
Now the focus shifts to the City Council, which must figure out how to ramp up city payments into the workers and laborers funds to the tune of $500 million annually within five years.
The mayor first envisioned that he would cover half of that tab by increasing property taxes by $50 million a year for five years, until $250 million was reached in year five. The rest would come from current airport and water and sewer fees, savings from cuts to retiree health care and other unspecified budget cuts.
Under Emanuel’s property tax plan, the owner of a $250,000 home would be paying an extra $250 in property taxes by year five. Owners of a commercial property worth the same amount of money would see an increase in year five of about $675, according to an analysis done by Cook County Clerk David Orr, whose office calculates property tax rates.
Those increases require a vote of the City Council, and the first $50 million increase would have to be approved in November, just a few months before city elections for the mayor’s office and all 50 council seats.
Many of the mayor’s loyal allies on the City Council questioned the council’s collective will to raise property taxes to make that payment. Increasing the so-called 911 tax also would require a vote by the council, but increasing that tax is considered less politically risky than hiking property taxes.
“I think the mayor has signaled in the last several weeks that he is willing to look at everything as an alternative to a property tax,” said Ald. Patrick O’Connor, 40th, the mayor’s council floor leader. “The governor has done us a great favor on this, and now we can work to determine the best way to meet our obligations as a city."
Ald. Will Burns, 4th, a former state legislator, suggested that the state could help by restoring the amount of money it provides to cities and villages, should lawmakers vote to extend an income tax hike that’s scheduled to begin expiring in January.
Under the pension measure Quinn signed, city workers and laborers will pay more directly into the pension funds and get less out of them once they retire. They will pay 2.5 percent more toward their retirement, increasing their contributions by 0.5 percent a year for five years.
Employees now pay 8.5 percent of their salary each year for pensions and would ultimately pay 11 percent. The increase will amount to about $1,500 more a year by 2019 for a city worker making about $60,000.
In addition, annual cost-of-living increases will be 3 percent or half the level of inflation, whichever is lower, based on their first annual pension benefit. Workers were getting 3 percent yearly bumps based on their previous year’s pension income.
Workers also will not receive annual pension bumps in 2017, 2019 and 2025, and they will not get their first increase until two years after retirement.
The plan was projected to eliminate about half of the $19.5 billion City Hall pension debt over 40 years.
Chicago Teachers Union President Karen Lewis called the law “theft,” and a labor group said it is prepared to sue over the measure, arguing it violates a section of the state constitution that says retirement benefits cannot be diminished.
“The mayor's plan is unfair and unconstitutional, and our unions intend to seek justice and will be preparing to file suit,” said the We Are One Chicago coalition, which includes the American Federation of State, County and Municipal Employees, the CTU and Illinois Nurses Association. Emanuel’s bill was not opposed by several other unions and, in the end, was backed by the Service Employees International Union.
For Quinn, signing the city pension bill riled up unions already displeased that he signed a similar measure in December to cut state government worker retirement benefits. The labor groups, however, like Rauner even less.
Political cover was an underlying theme Monday, and in a rare signing statement, Quinn sought to avoid blame for an eventual property tax hike, noting he successfully fought to strip out a provision that would have required a property tax increase. Quinn noted the law now leaves the funding source up to Emanuel and aldermen, and the governor urged them not to raise property taxes, warning they’d be held “directly accountable” by voters.
“Chicago’s finances can and should be set on the track to long-term stability in a way that does not hit homeowners the hardest,” Quinn said.
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