Mayor Emanuel: Change State Constitution on Pensions

Mayor Rahm Emanuel may be leaving office soon, but he’s about to put forward a proposal that’s likely to generate controversy as the race for his successor heats up.

On Wednesday, the mayor will call for big fixes to the city’s massive public pension deficits, and he wants lawmakers to come to the rescue by changing the Illinois constitution.

Thanks to our sponsors:

View all sponsors

The mayor says Illinois lawmakers should drum up the three-fifths majority it would take in the state House and Senate to amend the constitution’s pension protection clause. That clause has squashed multiple state and city efforts at pension reforms, as Supreme Court justices have upheld that any reduction in yearly raises constitutes a diminishment to the benefits guaranteed to public workers. Specifically, the mayor wants the city to have the flexibility to negotiate future raises for retirees. Pensioners are currently guaranteed a yearly 3 percent compounded cost-of-living adjustment.

Emanuel says that’s not sustainable, according to remarks prepared for his City Council address Wednesday:

“Think about it. 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? The fact is, a 3-percent compounded (cost-of-living adjustment) in an era of low inflation is not progressive and not sustainable,” the mayor will say, according to prepared remarks. “It made sense in 1970 when we had more workers than retirees and high inflation, but it does not make sense today. In fact, over the next 40 years, the City will contribute $42 billion to our pension funds just to cover the cost of the 3 percent annual (cost-of-living adjustment).”

Emanuel says the proposal should be paired with a plan to amend the state constitution to switch from a flat state income tax to a graduated, so-called progressive tax.

The city faces a looming pension cliff, as it will have to find more than $1 billion per year to put into the four city pension funds in the coming years. Emanuel is also expected to renew his call for a $10 billion pension obligation bond that would purport to reduce pension costs by borrowing money to put into the funds right now, with the hope that the interest on that borrowing will be less than the interest on the pension debt the city currently owes.

Mayoral candidates have offered their own skeleton proposals for the city’s pension problems – most of them involve finding more sources of revenue from the state. One candidate, former CPS CEO Paul Vallas, says he wants a consolidation of pension funds, either dissolving all of the city pension funds into the much larger state pension funds, or dissolving the four city pension funds into one city-run fund.

“The preference is to create consolidation at the state level to get more state funding, but as a backup, we could consolidate at the local level,” he said.

In addition, Emanuel will call for revenue from legalized marijuana and a Chicago casino to go toward pensions. He is set to give his address before a meeting of the City Council at 10 a.m. Wednesday.

Follow Paris Schutz on Twitter: @paschutz

Related stories:

Political, Financial, Housing Issues Face Next Mayor, City Council

Mayor Emanuel Prepares to Release His Final City Budget

A Chicago Pension Fix? Using Revenue from Public Assets

Is Emanuel’s $10B Bond Borrowing Plan the Right Pension Fix?

Thanks to our sponsors:

View all sponsors

Thanks to our sponsors:

View all sponsors