RAHM: AMEND CONSTITUTION TO HELP SOLVE PENSION CRISIS
Mayor also calls on council to start debate on stalled plan to borrow $10B
Mayor Rahm Emanuel on Wednesday will put his waning — but still formidable — political muscle behind a constitutional amendment to ease a $1 billion spike in pension payments that will confront his successor.
Sources said Emanuel also will urge the City Council to start debate on his stalled plan to borrow $10 billion to fund pensions. His plan involves setting up the legal structure to allow a bond sale if aldermen decide the move could minimize the need for another punishing round of tax increases.
Standard & Poor’s has warned that pension obligation bonds “in environments of fiscal distress or as a mechanism for shortterm budget relief ” could threaten Chicago’s BBB+ bond rating.
“There’s a lot of volatility and uncertainty on investment returns . ... If you borrow at 5 percent and only earn 3, you’ve made the problem bigger,” a municipal finance expert, who asked to remain anonymous, said Tuesday. “The massive number would also impact the city’s ability to borrow for routine infrastructure needs.”
The Illinois Constitution’s pension protection clause states that benefits “shall not be diminished or impaired.” It’s why the Illinois Supreme Court overturned Emanuel’s plan to save two of four city employee pension funds.
Many have argued that it’s high time to amend the state constitution. On Wednesday, Emanuel will join them.
“What kind of progressive, sustainable system guarantees retirees 3 percent annual compounded pay increases when inflation has been at basically zero and current employees have, at times, been furloughed, laid off or received 1 percent raises?” Emanuel was prepared to ask, according to excerpts of his speech released by the mayor’s office.
“A 3 percent compounded COLA in an era of low inflation is not progressive and not sustainable.”
Arguing that the “mantle of progressivity must not just be more taxes on the wealthy,” Emanuel will suggest a few alternative revenue sources, sources said, that are already popular with the crowded field of candidates vying to replace him.
If the Illinois General Assembly legalizes recreational marijuana and ends Chicago’s elusive quest for a land-based casino, any revenue derived from both should be devoted exclusively to pensions, the mayor will say. Emanuel has supported a Chicago casino since 2011.
But, he will not “push” the General Assembly to legalize recreational pot, as he is well aware that Gov.-elect J.B. Pritzker has vowed to lead the charge. The mayor also will argue that recreational pot and a casino are “not solutions in and unto themselves,” sources said.
“Amending the state constitution to allow for both a progressive income tax and new agreements with labor is an important step toward fiscal stability and progressivity,” the mayor was prepared to say.
“Coming at this challenge from both sides — reform and revenue — is the clearest path out of this challenge … and the fairest.”
Chicago taxpayers have already endured a $2 billion avalanche of tax increases just to begin to solve the city’s daunting pension crisis. But the boom will be lowered again after the election.
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.
“In 2020, just around the corner, the city will need another $276 million in new revenue to pay for higher police and fire contributions. In 2022, new revenue for the Municipal and Laborers pension funds is projected to increase by $310 million. These contributions must be made,” Emanuel is prepared to say.
“Whatever the results of the coming election, we cannot afford to return to the politics of the past … where promises are made without the means to fulfill them. We cannot allow the boulder we pushed up the hill to roll back down.”
Ald. Pat O’Connor (40th), the mayor’s City Council floor leader, said it makes sense for Emanuel to frame the pension debate with a call for a constitutional amendment.
“That was an idea that both the city and many of our partners in labor had embraced during the course of the negotiations previously,” O’Connor said Tuesday.
To get on the ballot, a constitutional amendment needs a three-fifths vote from state lawmakers and approval from voters. A constitutional convention “shall be called if approved by three-fifths of those voting on the question or a majority of those voting in the election,” the constitution states.