* Sun-Times…
On Wednesday, four unions — AFSCME Council 31, the Chicago Teachers Union, the Illinois Nurses Association and Teamsters Local 700 — urged Emanuel in a joint statement to drop the city’s court battle over his plan, given the state Supreme Court decision last week.
“We believe the Supreme Court’s ruling leaves no room for doubt that Chicago’s pension cuts also violate the plain language of the pension clause. In light of that decision and the city’s credit downgrade, we urge Mayor Emanuel to stop wasting time and money in a futile attempt to defend these unconstitutional cuts, and instead work with us to develop fair and constitutional solutions to funding city retirement plans,” the statement reads.
* John Schmidt begs to differ…
Chicago still has a winning argument: Its reforms do not “diminish or impair” pension benefits. That means the Illinois Constitution is not violated.
The reforms include some reductions in how future benefit increases are calculated, and they require modest increases to employee contributions. But they couple these changes with massive increases in the city’s contributions to the two funds — from $177 million in 2014 to an estimated $650 million in 2021.
The two pension funds were going broke. Twenty-eight of the 31 unions with members in these funds supported the plan because they recognized that in a few years their pension assets would be depleted and benefits would not be paid.
The city, for the first time, would be legally responsible for the funds’ liabilities. That’s a major change. Under state laws that established the pension funds, the obligation to pay benefits has always been on the funds themselves, not the city.
The city has had no obligation beyond a specified contribution to the funds each year. If the city paid its required contribution and the pension funds still went broke, the city had no legal obligation to step in and beneficiaries would receive pennies on the dollar.
Now the city has the obligation. Far from “diminishing or impairing” pension benefits, the city’s reform plan strengthens and protect benefits that were endangered.
But aren’t “reductions in how future benefit increases are calculated” a diminishment, even though they may have saved the funds from insolvency?
* The immediate pricetag…
Ralph Martire, director of the Center for Tax and Budget Accountability, said the latest downgrade to junk bond status will cost the city an additional $200 million to $300 million, on top of its existing budget deficit and employee pension fund shortfalls.
“It’s already looking at a deficit north of $250 to $300 million. Now pile on another couple hundred million – let’s be conservative – from the impact of the downgrade of the bond status. Now pile on the $550 million increase in pension funding that’s due this year, and you’re talking about a problem that’s collectively in excess of $1 billion, or a third of their budget for current services,” he said.
* And then there’s this monster…
Chicago may have to pay banks as much as $2.2 billion after Moody’s Investors Service dropped its credit rating to junk, deepening the fiscal crisis in the third-largest U.S. city.
The company’s decision Tuesday to cut Chicago’s $8.1 billion of general obligations two ranks to Ba1, one step below investment grade, allows banks to demand that the city repay debt early and exposes it to fees to end swaps contracts, Moody’s said in a statement. Mayor Rahm Emanuel plans to refinance $900 million of debt to reduce the penalties. […]
City officials may be able to persuade banks not to demand the penalties as long as Chicago can move ahead with its refinancing plan, said Johnson.
“I would guess that most of their counterparties would be fine letting them go,” he said. “If they end up not selling it, then that creates significantly more risk.”
Those big brains in the Daley administration really messed things up, didn’t they? But those swaps probably should’ve been renegotiated long ago.
*** UPDATE *** Press release…
Legislation sponsored by state Senator Daniel Biss (D – Evanston) seeks to shore up local pension funds by diverting state payments from an employer into the local pension fund when the employer fails to make the required pension contributions.
“Just as we must hold our state government accountable for pension contributions, so should we hold Illinois’ local governments accountable,” Sen. Biss said. “This legislation provides the enforcement mechanisms necessary to first encourage and then require the adequate funding of local pension funds.”
For decades, the Illinois Municipal Retirement Fund (IMRF) has had the ability to divert State payments to employers who failed to make their required pension payments. This is the main reason why IMRF is in excellent fiscal health, unlike so many other pension funds in Illinois. In recent years, police and fire pension funds and the Chicago municipal and laborer’s pension funds have acquired this power as well. Under House Bill 3484, the other local public pension funds, including those of the Chicago Public Schools, Cook County, and the Chicago Transit Authority, would be granted this ability.
“The history of pensions in Illinois makes one thing crystal clear: it is absolutely imperative that employers make adequate payments into the pension systems,” said Biss. “Last Friday’s Supreme Court ruling only serves to underscore the importance of this essential truth. Our legislation takes a major step to ensure that we will not repeat the mistakes of the past.”
House Bill 3484 passed out of committee today and now goes to the Senate floor for a vote.
[ *** End Of Update *** ]
* In other city-related budgetary news…
The CTA is already enacting contingency plans to absorb deep cuts in state funding sought by Gov. Bruce Rauner, the transit agency’s top finance official said Wednesday.
The CTA will erase from this year’s budget anticipated revenue of $21 million in state subsidies that would have helped the CTA to offset some of the cost of providing reduced fares and free rides to disabled riders and some senior citizens, Ron DeNard, CTA chief financial officer, told the CTA board at its monthly meeting.
The CTA received about $28 million in state funding last year for the reduced-fare and free-rides programs, which are mandated by state and federal laws.
Rauner is seeking to zero-out the state subsidy in fiscal 2016.
CTA President Forrest Claypool has said that the actual cost to the transit agency for the two programs exceeds $100 million a year in uncollected fares.
