Illinois Fixes City Pensions as State Crisis Lingers

The Illinois General Assembly placed new demands on the funding of municipal retirement plans, even as it recessed until early January without acting on a $3.7 billion bond proposal to make payments into state employee pension funds.

The state Senate doesn’t have enough votes to pass the bond plan, said John Patterson, spokesman for Senate President John Cullerton, a day after the chamber sent Governor Pat Quinn a bill that Chicago Mayor Richard M. Daley warned would result in the biggest property-tax increase in the city’s history.

Legislative inaction on state pension funding has dragged on for months in Springfield, prompting advocates of pension reform in Illinois to warn of the dangers of unfunded liabilities that total at least $80 billion.

“We don’t have the will to cut or reform the system, and we’ve been afraid to raise taxes,” said R. Eden Martin, president of the Civic Committee of the Commercial Club of Chicago. “Because of the political consequences, we’ve done neither.”

Quinn said today that he hasn’t decided if he will sign the bill that requires municipalities to make greater contributions to police and firefighter pension systems. While new workers would receive smaller retirement payments, the legislation leaves benefits for current employees and retirees untouched.

‘A Sound Way’

“For those men and women who put their lives on the line every day for us, when they retire they are entitled to a decent pension that is properly funded,” Quinn told reporters in Chicago. “You have to do it in a sound way.”

The Illinois Senate rejected Daley’s objections and approved the changes in funding requirements for police and fire pensions, which would take effect in 2015. Chicago officials said the revisions would result in a city property-tax increase of at least $500 million a year and damage its economy.

The controversy is another sign of concern over unfunded pension liabilities in state and municipal retirement systems in Illinois. An October study by economists at Northwestern University in Evanston, Illinois, and the University of Rochester in New York forecasted that Chicago would run out of money to pay benefits by 2019.

Illinois has $64 billion of assets to pay an estimated liability of $126.4 billion, enough to cover about half the benefits for 722,913 workers and retirees, according to bond documents. The unfunded liability will rise to $79.1 billion in fiscal 2011, according to a May report from the Illinois Commission on Government Forecasting and Accountability.

Chicago Burden

Chicago residents already face the highest individual burden for pension liabilities in the U.S. from seven municipal retirement plans, amounting to almost $42,000 per household, according the Northwestern and Rochester study.

Quinn has said he wants to borrow $3.7 billion with bonds for the state to make its pension fund contributions for fiscal 2011. He also wants to redesign Illinois’s five public-worker retirement systems to cut costs. The state sold $3.47 billion in debt in January to make its 2010 contribution.

The state’s House of Representatives approved the pension bonds but the Senate has yet to agree, even when called in for a session Nov. 4.

Daley announced in September that he wouldn’t seek another term in office after 21 years as mayor. One of the candidates seeking to succeed him, former chief of staff Gery Chico, said that the retirement needs of police and firefighters should be weighed against the ability of taxpayers to support them.

“We have to draw a balance that doesn’t put our taxpayers so far in the hole that they don’t want to live in this city anymore,” Chico said at a news conference yesterday.

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