Politics
How a Bill Boosting Chicago’s Police, Firefighter Pensions Could Impact the City’s Finances
Chicago has pension problems, and Illinois House Bill 3657 might exacerbate the issue. Gov. JB Pritzker recently signed the bill into law.
Per the bill, the city’s first responders under the Tier 2 pension system will receive better benefits — namely, a big retirement boost. It comes, however, at a steep financial cost to the city. According to a warning from a Wall Street ratings agency, the bill will worsen Chicago’s already fragile fiscal state by adding more than $11 billion to its pension liabilities, deepening the projected 2026 deficit of $1.2 billion, and lead to another credit rating downgrade.
The bill is designed to make sure that Chicago police officers and firefighters earn pension benefits at the same level as downstate first responders. It also ensures that pensions for police officers and firefighters hired after 2010 offer benefits that are in line with Social Security payments earned by private sector employees, as required by federal law.
However, S&P’s analysis found the bill did more than required and includes “much more generous benefit expansions” for Chicago first responders.
At the end of 2024, Chicago’s police and fire pension funds had funding levels of approximately 24.5%, according to the city’s annual financial report. That represented a slight improvement as compared with previous years.
The bill signed by Pritzker will wipe out that progress and decrease the funding levels of both pension funds to less than 18%, according to the city’s analysis.
By comparison, other large public pension funds have average funding levels of about 70%.
Austin Berg, executive director of the Chicago Policy Center, panned the law, calling it the worst piece of legislation for Chicagoans since the parking meter deal.
“It’s financially irresponsible but it’s also morally reprehensible,” Berg said. “It saddles young Chicagoans, our kids and grandkids, with billions of dollars in liabilities.”
Mayor Brandon Johnson’s office provided a statement: “The city outlined the benefits and challenges related to Tier II pensions during the spring session, pointing out repeatedly that this was an unfunded mandate in what will already be a challenging budget cycle. In recognition that this particular amendment passed with a veto-proof majority, we will continue to work with the Illinois General Assembly, and our City Council members to find long term solutions that stabilize the City’s pension funds with dedicated, progressive revenue so that Chicago’s workers can know that their retirements are secured.”
A spokesperson for Pritzker said in a statement that the governor expects Chicago to “implement these changes with careful planning and fiscal discipline.”
Roosevelt University public policy professor Ralph Martire views HB3657 as an attempt to “fix the Tier 2 pension problem,” referring to the first responders who were hired after 2010 and received a lower pension benefit than earlier hires.
“The problem is Tier 2 falls out of the safe harbor for Social Security,” said Martire, who serves as the executive director of the Center for Tax and Budget Accountability. “At a certain point, the state and the city would have to enroll all these workers into Social Security, which is far more expensive than the fix that the state put to this Chicago police and fire pension problem.”
Burdening the city with the excessive cost rather than the state assuming it is the major issue, Martire explained, saying the state of Illinois has multiple avenues to do so without taxing residents such as utilizing the local government distributive fund.
The pension bill also makes some major changes to the way that CPD employees’ final average salary is calculated. It used to average the last eight years. Now, it’s either the average from the last eight years or four years — whichever is higher.
Berg emphasized that the shift could result in $11 billion in new liabilities. The alternative, Berg argued, and the only way to get debt relief, is by filing for Chapter 9 bankruptcy.
“$750 million in 30 years — that could pay for thousands of potholes being filled; it could pay for thousands of new positions in our schools; it could pay for police and fire,” Berg said. “Instead, it’s going down the drain to pension and debt.”
The irresponsible approach to funding, investment losses and changes in assumptions are the major contributing factors in the issue rather than providing the benefits, argued Martire, who advocates for an increase in benefits for first responders.
It is still unclear how much the new bill will add to the city’s pension bill next year. That estimate is expected to be released by Johnson by the end of the month.
Heather Cherone and Capitol News Illinois contributed to this report.
