SPRINGFIELD — Mayor Rahm Emanuel on Tuesday took the rare step of traveling to the Capitol to make a personal pitch for an overhaul of city government worker pensions, saying costs are out of control and the "day of reckoning has arrived."
The mayor called for raising retirement ages and freezing cost-of-living increases for retired employees for 10 years. Emanuel also wants to require city workers to pay more toward their retirement, 5 percentage points spread over five years. "Newer" workers could choose to join a 401(k)-style retirement plan.
"Chicago's economy and the quality of life will falter," Emanuel warned.
The mayor's timing was no coincidence. His push comes as Gov. Pat Quinn and legislative leaders also are searching for ways to slow the rising costs of state pension plans that are about $80 billion in debt. In Chicago, the pension systems are about $20 billion in debt.
Emanuel, who has demonstrated he's willing to call rank-and-file lawmakers when he needs their support, gave assurances that he's willing to spend his "political capital" to straighten out the long-underfunded retirement plans.
Having Emanuel on board and out front for pension reform gives a measure of momentum to the issue — as well as political cover for lawmakers.
"I think his presence is helpful on pension reform across the board," said House Speaker Michael Madigan, D-Chicago.
Standing in opposition are union leaders whose members vote, volunteer and make campaign contributions. It's an election year, and all 177 House and Senate seats are on the November ballot, so approving pension reform before the General Assembly's adjourns May 31 isn't assured.
Chicago Teachers Union President Karen Lewis said the mayor's proposal attempts to "take every crumb from people who have worked 30 to 40 years to achieve some stability. We aren't talking about wealth" among retirees.
For Emanuel, pension reform is a must-have item. It's a case of simple math.
The city spends about $476 million a year on pensions for police, firefighters, municipal employees and laborers. But a state law passed a couple of years ago requires that amount to increase by as much as $700 million a year starting in 2015. And that's just for police and fire pensions. If the costs of making the municipal and laborers pension funds are added, the cost would increase by hundreds of millions a year, city officials said.
If changes aren't made, the budget pressure would be so great that 22 cents of every dollar in the city's local funds would be spent on pensions by 2016, Emanuel said.
The city relies mostly on property taxes to cover employee pension costs. City Hall collects about $798 million a year in property taxes. Of that, about $350 million is dedicated to pension fund payments, according to budget documents.
Emanuel said if pension costs aren't reined in, city homeowners will face a property tax increase. But Emanuel could tap other revenue sources to fund pensions. Two that have been mentioned are revenues from a Midway Airport lease or taxes collected at a city casino, if the state ever allows one.
Payments to pension funds for Chicago Public Schools teachers and the Park District come from separate tax levies. Without reforms, the cost of funding the teachers' fund could rise by $300 million, potentially triggering an untenable boost in class sizes, Emanuel said.
The mayor said he targeted cost-of-living increases because the effect of compound interest has been astronomical. Emanuel contended a retiree who received a $60,000-a-year pension in 1995 now gets $100,000 a year. But union leaders said those figures are out of line with the more modest pensions of their rank-and-file members.
Emanuel said the move to hit the "pause button" on retiree cost-of-living increases would be lifted after a decade, but compound interest would be replaced by a simplified formula.
He also offered the idea of giving "newer" employees a retirement plan option. Though still under discussion, the choice could be akin to a 401(k)-style proposal that would be portable. An increase in the retirement age for city workers would be phased in, officials said.
Emanuel makes pension pitch at Capitol
In rare appearance in Springfield, mayor lays out plan for reducing city pension costs
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