Posted April 28, 2015 10:05 am by Comments (24)

Print Friendly

 

By: Mark Glennon*

 

A research report recently issued by Nuveen Asset Management provides another take on the total annual liability Chicago taxpayers would face if they properly funded pensions for the city’s overlapping layers of government. Brace yourself.

 

Chicago has been contributing to its pensions only about one-forth of what Nuveen calls Annual Pension Cost — “the amount determined by actuaries to keep the plans solvent.” (We note that S&P recently said essentially the same thing.) The unpaid portion of the city’s pension contribution exceeded $1.2 billion, “a figure representing an astonishing 43% of the city’s general fund budget,” says Nuveen. But that’s just for the city itself. Add in the pensions for the school system, the park district, the Metropolitan Water Reclamation District, Cook County and the forest preserve district, and the annual contribution shortfalls total $2.1 billion.

 

“The property tax hike required to adequately fund Chicago’s pensions is staggering,” Nuveen says, though it notes that current rates are somewhat lower than neighboring suburbs. If paid for by property taxes, an average Chicago owner of a $400,000 home would have to pay an additional $3,355 to properly fund area pensions — a jump of $49%, Nuveen estimates.

.

That analysis does not include whatever Chicagoans may have to pay to help fix state-level pensions, which have an unfunded liability of roughly $200 billion, including healthcare benefits. Nuveen also notes that its analysis was made based on out-going accounting standards and 2013 numbers, the most recent available. New accounting standards will mean worse numbers and the pension deficits, along with the contributions required to fix them, grow each year. Finally, Nuveen ignored the RTA and CTA which also underfund their pensions.

 

Structural budget deficits at Chicago’s various layers of government are in addition. We continue to long for a credible, total analysis of those and pension deficits for all overlapping layers of government in Chicago. Chicago Public Schools alone, in its most recently reported year, had a loss in net position of over $1.1 billion with an operating fund deficit of $513 million.

 

*Mark Glennon is founder of WirePoints. Opinions expressed are his own.

 

 

Sort by:   newest | oldest
Al

Organized crime and the Democratic Party would appreciate if you don’t question their agendas.

Anonymous

What will happen to the pensions of retired Aldermen? Chicago Alderman, part time job but a pension is earned after 20 yrs service. I hope that Burke and company will not lose anything. They all have been so good for the city.

Anonymous

Thank you, Richie Daley!!!

Anonymous

IT IS THE TRUTH

Anonymous
WHERE DID ALL THE LOTTERY MONEY GO FOR THE SCHOOLS???????? HOW ABOUT ALL THE TOLLWAY MONEY???? HOW ABOUT VOTING IN SOMEONE WHO CARES ABOUT THIS CITY LIKE BRUCE RAUNER CARES ABOUT THIS STATE?? WOULD THIS BE SO DIFFICULT TO DO??? I LOVE CHICAGO BUT I’M READY TO MOVE AS PROPERTY TAXES ARE CRAZY AND ALL THESE POLITICIANS DO IS HAVE THERE HANDS OUT FOR MORE AS THEY RETIRE IN LUXURY WITH ALL THEIR BENEFITS AND GOODIES. HOW ABOUT ASKING THEM TO GIVE BACK A LITTLE!!!!! (OR A LOT) I’M SICK OF HAVING TO COUGH UP MORE AS THE POLITICIANS GET… Read more »
Anonymous

POLITICIANS SHOULD STOP STEALING!!!!!!!!!!!!

Richard Starbuck

Not a peep about increasing employee contributions concurrent with property tax bump. An employee who now contributes 9% can and must stand for an increase of 3 percentage points to a total of 12%. The constitution prevents diminished benefits. It says nothing about an increase in contributions. That additional 3% is pre-tax for those employees. As painless as possible and sorely needed.

James Gordon
Richard, you have an interesting take on how the long-standing state’s underfunding of its pension systems can be solved. Maybe you are right, but I think there are at least two reasons why you are not likely right. First, while I haven’t kept a running database tally of cases pertaining to public employee pensions in IL and elsewhere I’m almost certain I’ve seen your idea tried elsewhere and successfully challenged in the courts. I do know with certainty that any employee hike in contributions when aligned with benefit reductions has been overturned numerous times in IL and elsewhere. Secondly, let’s… Read more »
Jim Palermo
James, I regularly look at the minutes of my village’s police and fire pension fund meetings. When a police office or fire fighter retires, the cumulative contributions of the employee and the initial pension benefit appears in those minutes. Typically the employee’s total career-long contribution is paid back in benefits in slightly longer than two years. Were the employee contribution rate to double to 19-20%, and the payback period double, to say, 4 1/2 years, the term ‘benefit’ still wouldn’t be the least bit challenged. Recall that municipalities’ annual contribution for the normal pension cost, the amount earned in the… Read more »
Anonymous
Jim, I don’t doubt the truth of what you’ve said here at all, but you are looking at the situation a bit myopically. When you talk about the very short payback period for a retiree to fully recover his pension contributions you are inadvertently (or maybe conveniently to strengthen the arguement) omitting ALL the sources of funding for that pension: the individual member’s contribution as you’ve stated, but also the contribution by the state and/or local governments to at least partially match the employee’s contribution, the contributions of active employees towards the pension sysem, and the presumed growth of all… Read more »
Jim Palermo
Anonymous—My comments to James were in response to his assertion that at some point, an employee’s contribution to the pension plan can become so large that the ‘benefits’ received in retirement can no longer be called benefits. His was not an invalid point, but he may not have been aware of how short the payback period is. Given that many retired employees and survivors may receive benefits for more than thirty years, doubling the payback period from two-something years to four and a half with larger employee contributions isn’t unreasonable. While it is true that the employee’s contributed dollars are… Read more »
James
Jim, Again, I have no quarrel with most of what you’ve said in your latest reply. To me the REAL personal benefit only applies in the cases where the lifetime return from a pension exceeds what one might reasonably expect given all those decades-long sources of pension contributions I cited in my last reply. If, on average there is no REAL benefit to the pensioner as compared to a private plan he might have had with those those same dollars, then what was the point of having a pension at all from his point of view? Then, to the extent… Read more »
Jim Palermo
The validity of the comparison of the REAL benefit to public pension plan participation versus private plan participation is still puzzling to me because private pension plans are increasingly a thing of the past. An overwhelming majority of private defined benefit plans have been converted to defined contribution plans (401-k type plans). A development that has come about in the past three years or so is the practice of large corporations ‘putting’ their pension liabilities to large insurance companies because they are better suited to taking on the longevity risk. With the put, the corporations shedding the pension liability also… Read more »
James
Yes, I readily see that you misunderstood what I mean when referring to having any given individual invest all the current income sources that go into his public employee pension plan into a private plan. I didn’t mean the type of plan you though—those run by companies or insurance plans paid with their funds in the employees’ behalf. I meant literally the type of plan purchased by employees individually, those now widely known as DC plans. To me, if politics causes employee pension systems and the pension plans themselves to sway with the winds as politics is wont to do,… Read more »
Mike
The politicians conspiring with union lobbyists hiked the benefits and salaries so blame your union lobbyists. The public is left in the dark on the hikes. No one explains pension benefit hikes to the public. The public can’t approve collective bargaining hikes. The politicians don’t fully explain collective bargaining hikes to the public. The public is never given a change document detailing the changes to collective bargaining agreements. The unions opposed the public being able to approve collective bargaining agreements. The unions oppose the public being able to vote on pension and retiree healthcare benefit hikes. It’s an entirely political… Read more »
Mike
The large majority enjoy 45 years of legislators and Governors hiking pension benefits to underfunded pensions. That was done at the urging of public sector unions to which the large majority belong. The large majority votes on union leaders who employ and hire public sector union lobbyists who lobbied legislators to hike pension benefits to pensions that were already underfunded. The employee contribution absolutely matters and no one insinuated the employer contributions and investment returns should not be considered. The taxpayers funding these pensions yet not receiving them cannot make employee contributions at the levels of the Illinois public sector… Read more »
Steve Bigden

Richard,the FOP has been asking the city to increase both the employee and employer contributions for years. The city has repeatedly refused.

Anonymous

Another option is to move out of Chicago and Illinois. It has been happening already and will pick up speed. Essentially, the same thing already did in Detroit, and now Chicago/Illinois going down the same track.

It is a problem in different cities/counties/states across the USA. No one wants to compromise either, so we wait for the train wreck/bankruptcy.

Indyisawesome

Exactly. Many cities in this country are facing this issue.
thankfully though Indianapolis is one of the few cities with no pension funding issues and the state of Indiana is on fiscally sound ground.

Mike
One option is to freeze salaries until the pensions are fully funded or the unions (and others contributing to or receiving a pension) agree to claw back pension and retiree healthcare hikes. Drawback is that hurts the younger workers the most, and those that began their career in 2011 or later already have reduced Tier II benefits in many of the plans. Legislative benefit hikes to already underfunded pension and retiree healthcare funds should have been illegal and was a scam against the taxpayers yet it occurred almost every year from 1971 – 2011. The evidence is in the Illinois… Read more »
James
Mike, Some of what you say here is meaningful, lots of it is simply unsavory speculation of a way-too-general nature about how the political process works and also assumes that all of that behind-the-scenes manipulation benefits the public employees. So, without responding point-by-point since it would be far, far too long for many to care to read I’ll simply say that you have an implied assumption that every piece of legislation needs to be explained forthrightly to citizens almost individually and essentially passed only with their individual approval. That’s not how our democracy works; we elect others to do the… Read more »
Mike
Public sector union lobbyists hired by union bosses whom were elected by the rank and file union members lobbied politicians to pass legislative benefit hikes to underfunded pensions. The evidence of the legislative hikes is in the Illinois Pension Code, House Bills, Senate Bills, Roll Calls, Public Acts, witness slips, Senate Journals, House Journals, and all the associated documents. That process happened repeatedly, escalating in 1971 after the pension sentence was added to the State Constitution in 1970. Those pension benefit hikes are funded by taxpayers (yes we know those who pay into the pension system are also taxpayers) who… Read more »
Mitchell Serota
There is nothing new here. The annual report from the actuary has stated every year for a decade in the Executive Summary that the contribution amount is no where near the fixed rate that Chicago relies on. The rate was fixed many years ago and was not subject to any variability. That way, the contribution was an easy, reliable, steady budget item. It also bore no relationship to the reality of the true funding requirements of the plans. So, although the research report offered no new information, it is necessary to remind the public of a problem that is not… Read more »
mark glennon

Mitch- You’re right, as usual. Nothing in fact new here. But the public and the press need more than a reminder. They have no clue in the first place. Nothing like these numbers has ever been reported in regular media, who remain hung up on next year’s scheduled contribution, which, as you know, is an arbitrary number from Springfield.

wpDiscuz