Question of the day
Wednesday, Sep 18, 2019 - Posted by Rich Miller
* Greg Hinz…
Mayor Lori Lightfoot’s drive to get major city pension relief from Springfield has stalled, potentially upping the size of local tax hikes she’ll have to include when she unveils her proposed 2020 city budget next month.
The mayor in recent months has floated a variety of “help us” proposals, the most viable of which is to have the state assume unfunded Chicago pension liabilities as part of a package in which it also would help underfunded plans in numerous municipalities around the state. She’s facing a projected $823 million budget hole.
But a wide range of Springfield insiders say that’s not going to happen, at least not in the General Assembly’s fall veto session. Instead, a more limited plan that excludes help for Chicago is being teed up for consideration. […]
“Consolidation (of downstate and suburban pension funds) seems to be the one common theme I’m hearing,” said one top legislative insider who asked not to be named. “Lori’s between a rock and a hard place.”
Taking on Chicago’s unfunded pension liabilities was actually the least viable state option of all her floated proposals. No way was that ever happening.
There’s still potential revenue from a Chicago casino, however. And there are other things that the state might be able to do.
* The governor’s office sent Greg and myself this statement about the pension task force…
Addressing the challenges with downstate and suburban police and fire pensions would be a monumental accomplishment. For decades, these 650 unique operations have underperformed because they’re individually too small to participate in the highest-performing funds, and they pay substantially higher investment fees than their larger peers. However, if their investment resources were pooled together and they performed like their peers, they would have significantly better returns and at a lower cost. Right after taking office, the Governor asked a group of experts and stakeholders to come together on a potential agreement and solution, and he’s pleased that they’ve made significant progress. He looks forward to reviewing their findings.
The statement doesn’t mention Chicago, but the city was not part of the task force’s mandate. But there could be some future action. From a few weeks ago…
“The pension consolidation task force has been working hard since the winter to develop recommendations to address problems specific to the financial challenges of small downstate police and fire pensions,” Pritzker spokeswoman Emily Bittner said.
“We expect that they will submit recommendations for action this fall based on their mandate, but after we receive those initial recommendations, the task force could explore additional proposals related to pensions, including the city of Chicago funds.”
* The Question: What assistance, if any, should the state give to Chicago’s pension funds? Make sure to explain your answer, please. Thanks.
- City Zen - Wednesday, Sep 18, 19 @ 2:57 pm:
The state should give Chicago’s pension funds the same assistance they give every municipal district’s pension funds: Zero.
- Floyd Pepper - Wednesday, Sep 18, 19 @ 2:57 pm:
The ability to close existing TIFs within the city limits by city council vote.
- Tear One - Wednesday, Sep 18, 19 @ 2:58 pm:
Thoughts and prayers.
- A Jack - Wednesday, Sep 18, 19 @ 3:00 pm:
Chicago should not get any help from the state until they maximize the revenue resources the GA has given Chicago. Chicago needs to go forward with the casino and with a Marijuana dispensary in the Loop, before coming to the State with hat in hand.
- Earnest - Wednesday, Sep 18, 19 @ 3:01 pm:
Short answer, none. Long answer, consolidate the downstate pensions, get Lightfoot to do some Jerry Brown quality budgeting with cuts and revenues on her own, and hang out the carrot of bringing Chicago into the consolidated pension funds and doing some kind of help for all the municipalities only if the graduated income tax passes.
- lakeside - Wednesday, Sep 18, 19 @ 3:02 pm:
==The ability to close existing TIFs within the city limits by city council vote.==
Oooh, I like it. I’d tie it to an independent review so aldermen don’t try to ding their nemeses.
- RNUG - Wednesday, Sep 18, 19 @ 3:05 pm:
Key point: the known downstate pension proposals are all about better utilizing the existing municipal money going into the pensions through fund consolidation / pooling and better investments with lower overhead expenses. There is zero new State level money being proposed.
So give Chicago the same exact help … advise them to make better investment decisions and cut the management costs they are paying.
- City Zen - Wednesday, Sep 18, 19 @ 3:12 pm:
==these 650 unique operations==
Make it 325 by letting each municipality merge their police and fire pension systems.
- Three Dimensional Checkers - Wednesday, Sep 18, 19 @ 3:18 pm:
The state can allow Chicago home rule authority to raise revenue anyway it chooses without asking for anything in return.
- 47th Ward - Wednesday, Sep 18, 19 @ 3:22 pm:
The state should pay the employer portion of the teacher’s annual pension contribution. And if it’s not too much trouble, pre-pay for the next decade in cash, upfront.
We promise not to spend it on other things this time. Really. This time will be different, we swear.
Or, if that isn’t possible, then please go forward with the Eastern Bloc proposal for seccession.
#nodealCookxit
- DuPage - Wednesday, Sep 18, 19 @ 3:23 pm:
Chicago and Cook County property taxes are low compared to the collar counties. The shortfall was caused by Chicago not paying in over the years, so they could keep their taxes low. Now the bill is due, so they need to raise their taxes to pay it.
- Jibba - Wednesday, Sep 18, 19 @ 3:25 pm:
Nothing that costs any money. Silly or naive to expect actual dollars until you maximize your property taxes to rates paid by the rest of the state.
- Oswego Willy - Wednesday, Sep 18, 19 @ 3:25 pm:
Until the expected revenues can be seen for a casino, not yet been given a “face”, let alone a location, the route to this paying the pension debt, I’m not seeing a state bailout type of scenario either possible or feasible.
First;
===…make better investment decisions and cut the management costs they are paying.===
That’s a beginning.
The real interesting theme today on the Blog seems to begin and end with Gov. Jerry Brown.
Brown’s first run as governor is not as celebrated or measured as well as the last run.
If all I keep hearing is this “Lightfoot’s win was such an elective mandate… “, then the leadership of Gov. Brown in cuts, and understanding that Jerry Brown ain’t no conservative and relishes in being a liberal, the stylings of that in fiscal belt tightening should be studied.
Muni governing versus running a state is like comparing a stick shift automobile to flying the space shuttle on manual. The persona and understanding the politics to moves, tough moves, there’s lots to learn there. Instead of foolishly handling their business as they have been, the Lightfoot Crew needs to understand process and persona, and see how those cuts and governing can be sold.
If anything, the newly minted elected Lightfoot could make the case, which she’s been, that it’s far worse, but ignoring both short and long term pain is not looking at the challenges now honestly.
It’s the politics to the pain. The state isn’t an actor in either.
- Shemp - Wednesday, Sep 18, 19 @ 3:32 pm:
After years of bills and lobbying that went absolutely nowhere and into the black hole, it’s nice to here the consolidation of the local pension funds MIGHT actually be moving somewhere. I’ll not hold my breath though.
- cover - Wednesday, Sep 18, 19 @ 3:39 pm:
= Make it 325 by letting each municipality merge their police and fire pension systems. =
Why not make it 1 by merging all of those systems into the already existing Illinois Municipal Retirement Fund (IMRF)? If your village has a population below 5000, your police and firefighters are already covered by IMRF.
- don the legend - Wednesday, Sep 18, 19 @ 3:50 pm:
Perhaps the mayor should tell her fellow Chicagoans that there is no help coming, not today, not tomorrow.
That we are going to beat this problem but it won’t be easy. It won’t be without pain. It will take large cuts from many and large revenue hikes from most. Remind them they are the “City of Broad Shoulders”.
Get to work, make the tough decisions, but paint the picture that when Chicago emerges it will be stronger and better than ever.
Invoke Churchill and FDR. Desperate times require desperate measures. Show them she is willing to risk her political future. Anything short of that can’t solve the problems she inherited.
- Donnie Elgin - Wednesday, Sep 18, 19 @ 3:56 pm:
In the words of judge smails.. you’ll get nothing and like it.
- Just Me 2 - Wednesday, Sep 18, 19 @ 3:59 pm:
Pension payments too high? Just skip them. The State did that twice and spent the money on all sorts of goodies.
- Yellow Dog Democrat - Wednesday, Sep 18, 19 @ 4:07 pm:
“I’m gonna give ya a piece of advice. Don’t ask for something if it’s a burden to ya if ya get it.” - Hoffa
- JS Mill - Wednesday, Sep 18, 19 @ 4:22 pm:
The state should not give any assistance to Chicago’s pension funds.
When Rich Daley was mayor he made the deal to take over the CPS pension which was over funded at the time.
Their pension mess is far more recently created and they did it on purpose. It is their issue to fix.
- Rich Hill - Wednesday, Sep 18, 19 @ 4:33 pm:
Permit a local income tax.
- The Original Name/Nickname/Anon - Wednesday, Sep 18, 19 @ 4:33 pm:
$50M per year (once progressive tax is passed) to acknowledge that the GA is partially at fault for adopting laws to underfund the City pensions. A proportional amount should go to every city with local police/fire pension plans.
==Pension payments too high? Just skip them. The State did that twice and spent the money on all sorts of goodies. ==
The GA changed the law to allow the skip of payment, Chicago does not have that luxury.
- Lucky Pierre - Wednesday, Sep 18, 19 @ 4:39 pm:
The employees, specifically CTU, should pay the employee share of the pension contribution.
That is why it is called the “employee contribution”.
Calling it the “employee contribution” when the city picks up 7 of the 9% is Enron style smoke and mirrors.
- Moody's Blues - Wednesday, Sep 18, 19 @ 4:55 pm:
Question for a smart pension person:
Suppose downstate Anywhere, Illinois, has average pension underfunding and pays $10 million a year into its police and fire pension funds. Either Anywhere or its funds pay $X in investment and admin costs.
Let’s pretend that a new, consolidated statewide fund cuts $X to $Zero. Great.
But does saving $X and having statewide central management make much difference in Hooterville’s ability to pay pensions? Or does saving $X sound good and make sense but only scratch the surface of Hooterville’s unfunded obligation?
Which is to say: Are we deluding ourselves to think that consolidation is a solution when it just perfumes the skunk? Can someone here solve for X?
- Angry Republican - Wednesday, Sep 18, 19 @ 5:10 pm:
Allow the city of Chicago to sell naming rights to city owned assets.
- SSL - Wednesday, Sep 18, 19 @ 5:11 pm:
Ask not, what Illinois can do for you Lori, ask what you can do for Illinois.
Why would the state, with an unfunded pension liability of $150B (or is it $240B), want to take on Chicago’s pension bogey?
What type of creative accounting would that require?
- Chicagonk - Wednesday, Sep 18, 19 @ 5:36 pm:
Pass a municipal bankruptcy bill. Having it would be help the mayor negotiate better labor contracts and I think there would be minimal impact to credit ratings.
- Mattoon Silly - Wednesday, Sep 18, 19 @ 5:40 pm:
@Moody’s Blues
The two states that resemble Illinois in terms of (i) political party domination; (ii) economic strength; and (iii) government culture are New York and California. For the most part, those states have consolidated pension funds.
You lump everything together and you get rid of the following problems: (i) management ineptitude (there is a fair bit of this, sadly); (ii) financial advisors and consultants leveraging (i) to charge disparate fees and gouge these systems; and (iii) a lack of economies of scale.
The only people that fight against pension fund consolidation are those profiting off of it (or those able ton be convinced by the folks that are profiting off of it). Not doing it makes zero sense.
By no means a panacea but would certainly save tens of millions (if not hundreds of millions) over the long haul - monies that should be kept in the corpus of the funds.
- Stuntman Bob's Brother - Wednesday, Sep 18, 19 @ 6:09 pm:
==Permit a local income tax==
I’m not necessarily against this, but it would have to be fair. If Chicago gets to benefit by reducing the take-home pay of a suburban resident who works in Chicago, then it should be reciprocal, the suburbs should be able to benefit by reducing the take-home pay of someone who lives in Chicago but works in the suburbs.
- City Zen - Wednesday, Sep 18, 19 @ 6:33 pm:
==The two states that resemble Illinois in terms of (i) political party domination; (ii) economic strength; and (iii) government culture are New York and California.==
Try New Jersey and Massachusetts. Our GDP is closer to Indiana than NY.
- Frank talks - Wednesday, Sep 18, 19 @ 7:27 pm:
Have Chicago put in video gaming. It’s outpaced the casino revenue. It is monitored by the state and it’s literally free revenue. Just approve and dedicate all revenue to pensions, heck a ton of the players are probably pensioners anyway.
- RNUG - Wednesday, Sep 18, 19 @ 7:37 pm:
== does saving $X and having statewide central management make much difference in Hooterville’s ability to pay pensions? ==
The honest answer is it depends, but it could be a noticable amount. If you are paying a percentage on the money invested that year, you have to have that much return just to break even. Compound that shortage over 20 or 30 years and you are talking some real money.
To get an idea of how drastically it can affect you, go to one of the financial websites and model a portfolio with a front-end sales load (and management fees on top) with a back-end load (and management fees). Drastic difference in what you have in 30 years. Then compare both those with a no-load portfolio with a minimum flat sales fee and very small management fees … that is even better in the long run.
The way you start to dig out of a hike is by investing as much cash up front as possible, putting it all to work as soon as possible, and paying as little in fees as you can. Consolidating the hundreds of pension funds to get lower fees would be a good first step.
- Bruce - Wednesday, Sep 18, 19 @ 7:55 pm:
When fed cuts rates it is time to go to the bond houses for 100 year bonds.
- OurMagician - Wednesday, Sep 18, 19 @ 9:22 pm:
Allow them to sell the parking meter revenue….oops. Allow/push for video gaming at O’Hare/Midway and have portion of that dedicated to pension funds.
- Quibbler - Thursday, Sep 19, 19 @ 6:19 am:
Lots of austerity nihilism in this thread.
- Elliott Ness - Thursday, Sep 19, 19 @ 7:19 am:
Zero or less. The issue is irresponsible spending and any “assistance” would only deepen the addiction to MORE money. They got a huge benefit from the new school funding formula and now want even more. Get your TIF and property tax assessment house in order, dedicate ALL new casino and pot revenue to pensions and STOP spending money you don’t have. If Springfield must get involved, get involved in handling the above referenced TIF, property tax, casino and pot for Chicago if they can’t be responsible themselves.
- Hottot - Thursday, Sep 19, 19 @ 7:45 am:
Illinois already has a rep for being a very high tax state, even though my property taxes, at 2900 for this year, are around the same to my knowledge, of what is charged in Indiana and Wisconsin. Chicago keeps losing people due to high taxes. Why not LOWER property taxes, or put them on a sliding scale based on square footage, and work to encourage people to move to Chicago? I dont live anywhere close to Chicago, but I love going there. Raising property taxes keeps driving people out. So maybe lowering them would reverse the effect.
- Question - Thursday, Sep 19, 19 @ 8:35 am:
Who goes to the broke Uncle looking for a few bucks?
The Governor is personally in a more tenable position to bail out the City than the State he runs. It’s the rich Uncle, Mayor . . . . .
- JIbba - Thursday, Sep 19, 19 @ 8:46 am:
==Try New Jersey and Massachusetts. Our GDP is closer to Indiana than NY.===
Try reading the entire comment, which includes other factors. And thanks for the shade on our GDP, the 5th in the nation and 2.4 times greater than Indiana, and about 40-50% larger than the states you mentioned.