By: Mark Glennon*
We now have a partial view of the new up-ramp on contributions Chicago taxpayers will be required to make to the city’s four pensions. (The Chicago teachers pension is a fifth, legally separate pension. It’s funded, at least theoretically, by the Chicago school district.)
Annually required contributions are set by state law. The ramp for the last two pensions was finalized by provisions in the state budget bills passed last month over Gov. Rauner’s veto. Those provisions went mostly unnoticed, though The Civic Federation published a nice summary, linked here. Legislation changing the ramp for the other two pensions became law earlier, also over Rauner’s veto.
Here’s the new ramp for all four, which was released on July 31 as part of Chicago’s 2017 Annual Financial Analysis:
The amounts are initially fixed numbers. That changes in 2020 for the police and firefighter funds (PABF and FABF) and in and in 2022 for the municipal and laborers’ funds (MEABF and LABF). Then, required contributions will be annually-calculated “ARC” amounts – the contribution the pension actuary says are enough to get the pensions to 90% funding in 40 years.
In other words, the ramp is a can-kick. It means the city will continue to fund the pensions inadequately but make it up later.
Does later ever come? When the time comes to pay up, just go back to Springfield for an extension, or take a pension holiday, or borrow to make the contribution. We saw that with the “Edgar Ramp” implemented during former Gov. Jim Edgar’s term. In the meantime, unfunded liabilities compound. Today, they total $35.8 billion for the city’s four funds. They are only 21% funded in aggregate.
So, will Chicago fund the pensions as required by the ramp? Would it? Can it?
Some tax and fee increases are already in place to help cover the next few years. However, as The Bond Buyer put it, “Details on how the city will meet a big jump in pension payments in the coming years, when actuarially based contributions kick in, remained elusive…. When asked after his address on future funding sources for pensions, Emanuel didn’t offer details, simply saying the city would adhere to the ‘more balanced’ approach that he’s favored since taking office.”
The Civic Federation said, “the magnitude of the increase in funding that will be necessary in FY2023 when the City begins to fund at an actuarially-calculated level is currently unknown and no plan for funding that increase has been made public.”
The numbers we have on future contributions aren’t very good, either; that chart above is all we have. It would be especially nice to see a longer term projection of required contributions and the impact on unfunded liabilities during the interim. The numbers are also subject to the usual reasons for cynicism about pension reporting. For example, the funding goal of 90% is nothing more than assuming away part of the problem up front, and the the projections are based on those highly controversial assumptions about returns on pension assets.
Back to the question whether Chicago will honor the ramp, I’d say it’s really a matter of whether taxpayers will put up with it. On that, I think most readers are as qualified to answer as anybody.
*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.