Today’s number: $13.33 billion
Monday, Apr 15, 2024 - Posted by Rich Miller
* Ralph Martire writes about how Chicago ended up with $33.9 billion in unfunded pension liabilities. In fiscal year 2000, he notes, the city’s pension systems were funded at about 85 percent…
Consider the economic factors first. The recession that began after the “dot com” bubble finally burst in early 2000 and the Great Recession that rocked financial markets from December 2007 through June 2009 collectively led to some $15.9 billion in investment losses for Chicago’s pensions. However, due to the long-term diversified portfolio approach to investment used by the systems’ trustees, all but $4.52 billion of those losses have been recouped.
Second, state lawmakers changed various actuarial assumptions used to project growth in pension assets and costs. Those changes led to the unfunded liability growing by some $4.07 billion.
The gorilla in the room, however, is the state law that allowed Chicago to significantly underfund its pensions every single year for close to two decades. That law specified an annual pension payment that was well below the actuarial required contribution, or ARC.
Basically, the ARC identifies how much should be contributed to a pension system in a given year, so it will be adequately funded to cover its liabilities over the next 30 years. Whenever a pension contribution is set at a rate below the ARC, it creates unfunded liabilities that ultimately have to be paid, along with interest that accrues and compounds.
Of course, it also didn’t help when the state passed legislation, requested by then-Mayor M. Richard Daley, that allowed Chicago to take “pension holidays” —that is, make little to no pension contributions — in 2006 and 2007. Together, these state laws ultimately account for $13.33 billion, or 59%, of the $22.6 billion aggregate growth in unfunded pension liability from 2007-2022.
Emphasis added.
- Leash - Monday, Apr 15, 24 @ 2:34 pm:
No, you’ve got this all wrong. For years the mayors and councils have assured us that they are for working men and women. The Progressives are even better. They are the champions of working class people. There is no way they have underfunded pensions.
- Downstate - Monday, Apr 15, 24 @ 2:56 pm:
It seems like most of the usual tools available (city income tax, taxing financial transactions, sales/property tax increases) will only exacerbate the problem.
- City Zen - Monday, Apr 15, 24 @ 3:00 pm:
==that allowed Chicago to take “pension holidays”==
Allowed, not forced.
- Rich Miller - Monday, Apr 15, 24 @ 3:07 pm:
===Allowed, not forced===
Correct. The Daley legacy.
- Original Rambler - Monday, Apr 15, 24 @ 3:08 pm:
SMH. RMD administration - not just him but his cohorts and enablers - looks worse and worse over time. Bedore sat on the PPB grilling agencies ostensibly for fiscal prudence. I guess it was do as I say not as I have done. It’s amazing how none of this stink stuck to them.
- Boone's is Back - Monday, Apr 15, 24 @ 3:08 pm:
yikes
- Juvenal - Monday, Apr 15, 24 @ 3:29 pm:
=== Correct. The Daley legacy ===
Wasn’t Vallas doing the same thing at CPS?
- TinyDancer(FKASue) - Monday, Apr 15, 24 @ 3:31 pm:
In 1995 the Chicago Teachers Pension Fund was 100% funded.
Then Daley took over the school system, and didn’t see the need to continue to fully fund a fully-funded system. ( I guess he was absent the day they covered stocks, bonds, markets, etc.)
With Springfield’s help, he shorted the fund.
And the rest if history.
And don’t get me started on the parking meters.
- low level - Monday, Apr 15, 24 @ 3:35 pm:
==Bedore sat on the PPB grilling agencies ostensibly for fiscal prudence.==
What was Knorr saying during this time period?
- 47th Ward - Monday, Apr 15, 24 @ 3:37 pm:
So we owe the pension funds close to $23 billion? I’d like to think we could have built a lot of affordable homes with that kind of money.
This is why Chicago can’t have nice things.
- Former State Worker - Monday, Apr 15, 24 @ 3:45 pm:
Might be time to start a GoFundMe.
- Keyrock - Monday, Apr 15, 24 @ 3:56 pm:
Maybe the City can recover from the RMD administration when the parking meter deal ends.
A shame most of us won’t be around then.
- Huh? - Monday, Apr 15, 24 @ 4:01 pm:
Let the wailing begin - The pols have to cut pensions to the greedy teachers causing this dreadful pension crisis. For shame those over priced and underworked teachers demanding a fat life time pension on the backs of the poor working class people of Chicago.
All the while ignoring the fact that the pols intentionally underfunded the pension system by taking “holidays”.
- Huh? - Monday, Apr 15, 24 @ 4:02 pm:
Why does this seem like a repeat of the State employees pension crisis?
- Carol Taylor - Monday, Apr 15, 24 @ 4:39 pm:
Richard Daley didn’t manage skipping out on the Actuarial Pension payments on his own. Jim Edgar got favors as did Speaker Madigan and Senate President Phil Rock. I imagine Pate Phillips got something too?
- RNUG - Monday, Apr 15, 24 @ 4:43 pm:
Not making the actuarial contributions and taking pension holidays is exactly how the State got into pension trouble also.
This CPS problem was foreseen a long time ago; it’s just been a slow train wreck building up to a big one.
They can dig out of this just like the State did, gradually over time. But you can expect them to be looking for the State taxpayers to help bail them out … even though the State already gave them money.
- JS Mill - Monday, Apr 15, 24 @ 4:49 pm:
====Allowed, not forced===
Correct. The Daley legacy.=
All day long.
=Wasn’t Vallas doing the same thing at CPS?=
Vallas was not in charge of the pension payments.
CPS, as a part of the deal that gave Daley control over the schools received and continue to receive a disproportionate share of state aide.It took four years to go from 100% funded to 85% funded and about 10 more years to be less than 40% funded (that number may be off a little).
RNUG, our resident pension guru, is 100% correct.
- Ashland Adam - Monday, Apr 15, 24 @ 4:51 pm:
In response to Carol T.’s question - Yes, Pate Philip and Lee Daniels played key parts. My recollection is that Philips was Senate President, and Lee Daniels was House Speaker (‘93 - ‘95?) when this legislation was passed.
- Ashland Adam - Monday, Apr 15, 24 @ 5:01 pm:
Vallas was Chicago’s budget director under Daley, from 1990 - 93, and CEO of CPS from 1995 - 2001. So he was in leadership during these years at both the city and CPS. He bears responsibility for defaulting on CTPF also. Arne Duncan followed Vallas, and continued the practice.
- allknowingmasterofraccoondom - Monday, Apr 15, 24 @ 5:09 pm:
Ashland Adam - Monday, Apr 15, 24 @ 5:01 pm:
RMD was the boss. Not Vallas. Not Arne. Richie Daley was THE BOSS.
- A - Monday, Apr 15, 24 @ 5:20 pm:
And so, while skipping payments owed to the pension funds, where did the money go?
- Rich Miller - Monday, Apr 15, 24 @ 5:29 pm:
===where did the money go? ===
It got spent.
- ZC - Monday, Apr 15, 24 @ 5:41 pm:
And a fair bit of it got spent (in the short run) on the teachers - Daley and Vallas used the teachers’ pension fund in the short run to buy peace, and to spend more in the immediate time frame on schools and on salaries. And the CTU leadership at the time authorized and approved those diversions.
Daley bought off a LOT of people with his pension diversions. Not defending him but a lot of other Chicago actors don’t come out of this era looking great. It’s very hard to find quotes from CTU leadership in the 1990s wailing about these pension diversions. The Chicago Tribune was worse. They were happy to run endless copy about Hired Trucks but as long as Daley wasn’t raising property taxes, he and Vallas were the Tribune’s golden boys for a long run.
- @misterjayem - Monday, Apr 15, 24 @ 5:53 pm:
“It got spent.”
Just like the windfalls from Richie’s parking meter, downtown garages and the Skyway deals.
– MrJM
- ChicagoBars - Monday, Apr 15, 24 @ 6:02 pm:
===where did the money go? ===
It got spent.
Spent? I think it was more it never got collected/contributed by keeping annual City budgets/property taxes artificially low rather than spent? Could be wrong. I mean that administration certainly did all kinds of bond deals (of varying quality) to pay for lots of other things with future revenue too.
- Ashland Adam - Monday, Apr 15, 24 @ 6:04 pm:
Yes, allknowing….RMD was boss. And Vallas had been city budget director, and then CEO of schools. So he presumably knew something about sensible budgeting. Gery Chico was Pres of the CPS Board, appointed by RMD. So - do they bear no responsibility for a policy which they likely had input to, and implemented? Or were they just following orders?
- Rich Miller - Monday, Apr 15, 24 @ 6:31 pm:
===I think it was more it never got collected/contributed by keeping annual City budgets/property taxes artificially low rather than spent===
Yes. That too.
- Numbers - Monday, Apr 15, 24 @ 8:16 pm:
If i buy a Cadillac and don’t make any payments, and then owe interest and the principal, I can say, yea, the problem isn’t that I bought a Cadillac, but that I didn’t make any payments. Technically true. Also true, if I bought a Corolla, and didn’t make any payments, I wouldn’t owe as much as the Cadillac.
Also, to the state law that changed actuarial assumptions. Don’t know what law that is off the top of my head, but I presume the assumptions are now more accurate? I guess the state can always reverse that law to make the numbers look better on paper.
- Numbers - Monday, Apr 15, 24 @ 8:56 pm:
Also, how have the Chicago systems not fully recovered their investment losses from 2008-2009? What kind of fees are they paying? Yu could have bought just about anything from the peak are you have more than just recovered, but would be up 100% at least, and more realistically like 200%.
- May soon be required - Wednesday, Apr 17, 24 @ 9:57 am:
==Also, how have the Chicago systems not fully recovered their investment losses from 2008-2009? What kind of fees are they paying? Yu could have bought just about anything from the peak are you have more than just recovered, but would be up 100% at least, and more realistically like 200%.==
When you are 20% funded, you don’t have enough to invest, it’s all being spent to pay retirees. They lost their investment base.