Rahm’s fi­nal bud­get won’t in­clude $10 bil­lion pen­sion bor­row­ing, but it’s not dead

Chicago Sun-Times - - TOP NEWS - BY FRAN SPIEL­MAN, CITY HALL RE­PORTER fspiel­man@sun­times.com | @fspiel­man

Mayor Rahm Emanuel’s fi­nal bud­get will not in­clude a con­tro­ver­sial $10 bil­lion pen­sion bor­row­ing, but that doesn’t mean he has shelved the mas­sive bor­row­ing tailor-made to min­i­mize the need for an­other pun­ish­ing round of post­elec­tion tax in­creases.

Chief Fi­nan­cial Of­fi­cer Ca­role Brown said it was never the mayor’s in­ten­tion to tie the pen­sion bor­row­ing and the bud­get to­gether.

The plan was to do them sep­a­rately, with the bor­row­ing com­ing first.

That timetable was dra­mat­i­cally al­tered on Sept. 4. That’s when Emanuel touched off the po­lit­i­cal equiv­a­lent of an earth­quake by choos­ing po­lit­i­cal re­tire­ment over the up­hill bat­tle for a third term.

“When that changed, the con­ver­sa­tion in­ter­nally and ex­ter­nally changed be­cause we start mak­ing sure that we’re all fo­cused on the right pri­or­i­ties be­cause we know we have a fi­nite amount of time,” Brown said.

“It’s never just about the math, be­cause the math works. It’s about tim­ing. … It’s about hav­ing other things that we have to get done like the bud­get and what coun­cil and oth­ers want to be fo­cused on.”

Now a fi­nal de­ci­sion on the pen­sion bor­row­ing has been put off un­til after the City Coun­cil ap­proves what Brown de­scribed as a “pretty vanilla” bud­get with no new taxes and fees.

Mean­while, in­ter­est rates have started to rise, cut­ting into the po­ten­tial sav­ings.

Brown still be­lieves the $10 bil­lion bor­row­ing “makes fi­nan­cial sense if we can achieve the right rate.”

“Whether or not we do this, the next ad­min­is­tra­tion will be faced with how to pay more than $277 mil­lion in pen­sion pay­ments next year. It’s what they’re gonna be look­ing at when they do their 2020 bud­get,” she said.

“If we can come up with a fi­nan­cially sound way to sta­bi­lize our pen­sion funds while we still make con­tri­bu­tions, but make those con­tri­bu­tions more man­age­able over time and lower the cost of fund­ing our pen­sions, I don’t know why we wouldn’t con­sider it.”

Emanuel’s lame-duck sta­tus has em­bold­ened al­der­men who have taken a se­ries of tough votes just to be­gin to solve Chicago’s $28 bil­lion pen­sion cri­sis.

It’s not at all clear whether he still has the juice to push the pen­sion bor­row­ing through the City Coun­cil.

Brown ac­knowl­edged that “your po­lit­i­cal cap­i­tal changes when you’re not run­ning for re-elec­tion.”

But she also said that “a lot” of in­cum­bent al­der­men seek­ing re-elec­tion “un­der­stand the dif­fi­cult choices they’re gonna have to make” next year and “the ben­e­fits” of the $10 bil­lion bor­row­ing “and would be sup­port­ive of it.”

Ald. Joe Moore (49th), an Emanuel ally, said he’d like noth­ing more than to min­i­mize the post-elec­tion pain for Chicago tax­pay­ers.

They have al­ready en­dured a pa­rade of prop­erty tax in­creases for po­lice, fire and teacher pen­sions, two in­creases in the monthly tax tacked on to tele­phone bills and a 29.5 per­cent sur­charge on wa­ter and sewer bills.

“Most of my col­leagues are ex­pect­ing to come back next year. If at all pos­si­ble, they’d like to avoid what will be a very dif­fi­cult choice in how we close that pen­sion gap and avoid go­ing off the cliff. But you don’t want to re­peat the mis­takes of the past,” Moore added.

“If it doesn’t cost us money in the long run, we should do what­ever we can that’s fis­cally re­spon­si­ble to avoid the big hit. … But, with in­ter­est rates ris­ing, I don’t know how fea­si­ble it will be.”

After a five-year ramp-up to ac­tu­ar­ial fund­ing ends, Chicago tax­pay­ers will be on the hook to keep city em­ployee pen­sion funds on the road to 90 per­cent fund­ing.

By 2023, the city’s con­tri­bu­tion to all four funds will nearly dou­ble — from $1.2 bil­lion this year to $2.1 bil­lion, ac­cord­ing to the city’s an­nual fi­nan­cial anal­y­sis.

The $10 bil­lion pen­sion bor­row­ing is tailor-made to min­i­mize the need for an­other pun­ish­ing round of post-elec­tion tax in­creases.

Days be­fore pulling the plug on his re-elec­tion bid, Emanuel of­fered a spir­ited de­fense of the pen­sion bor­row­ing plan. May­oral can­di­date Paul Val­las, mean­while, has warned it would put Chicago tax­pay­ers in a “fi­nan­cial strait­jacket.”

Mu­nic­i­pal fi­nance ex­perts also have raised con­cerns about Emanuel’s plan, point­ing to pen­sion-bond de­faults in Detroit, Cal­i­for­nia and Puerto Rico.

They won­der what would hap­pen if the mar­ket tanks and what spe­cific city rev­enue would be used to back the bonds, now that Emanuel has iso­lated sales tax rev­enue in a spe­cial fund and used that “se­cu­ri­ti­za­tion” struc­ture to re­fi­nance $3 bil­lion in city debt.


Ca­role Brown

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