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Moody’s: New Chicago firefighter pension law is “credit negative”

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Illinois

A Wall Street rating agency that alone gave Chicago a junk bond rating on Friday branded as “credit negative” a bill Gov. J.B. Pritzker signed over Mayor Lori Lightfoot’s objections boosting pensions for thousands of Chicago firefighters.

“The legislation is credit negative for the city of Chicago,” said the advisory from Moody’s Investors Service, “because it will cause the city’s reported unfunded pension liabilities, and thus its annual contribution requirements, to rise.”

With pension contributions consuming 17% of the city’s operating revenue and total liabilities pegged at $46.6 billion in 2019, pensions are the “largest credit challenge facing Chicago,” Moody’s said.

Pritzker signed the bill on Monday, arguing the new law “creates a system that gives all firefighters certainty and fair treatment.” But Lightfoot, who had urged the fellow Democrat not to sign it, blasted it as a “fiscally irresponsible” law typical of Springfield’s “back room deals.”

Moody’s on Friday gave Lightfoot more ammunition.

Governors who veto bills that pass with veto-proof majorities tend to get rolled. It would also have helped if the mayor had convinced at least one Senator from the city’s delegation to vote “No” back in January. But the mayor was apparently very angry…

Hard to see how @chicagosmayor Lori Lightfoot endorses @GovPritzker for another term after two big bill-signing snubs in two business days. I wouldn't be surprised if she says she's staying out of it. #ILGov2022 pic.twitter.com/lwgbN1Xgm0

— Bill Cameron (@billjcameron) April 6, 2021

* Moody’s did have other things to say about the new law…

House Bill 2451 eliminates a formula based on birth date that provided lower pension COLAs to certain retired firefighters. As a result of the new law, all retirees that are considered “Tier 1” members of the FABF will now receive a 3% COLA annually on their pension, with no cumulative cap. Before House Bill 2451, retired firefighters in Tier 1 would have received a 1.5% COLA, subject to a 30% cumulative cap, if born on or after January 1, 1966. Members of the FABF receive Tier 1 benefits if hired before January 1, 2011, while those hired on or after January 1, 2011 receive less generous Tier 2 pension benefits.

One potentially advantageous effect of House Bill 2451 is that it forces immediate recognition of 3% COLAs for Tier 1 members. The state law governing Chicago firefighter pension COLAs has been amended on several occasions in the past to alter the birth date that would determine eligibility of a Tier 1 retiree for a 3% COLA versus a 1.5% COLA. The most recent such change occurred in 2016, when the law was updated to provide a 3% COLA to all Tier 1 firefighters born before January 1, 1966, compared to January 1, 1955, before the change. That change, in addition to several other provisions, triggered a roughly $227 million (4.5%) increase to the actuarial accrued liability reported by the FABF as of the December 2016 actuarial snapshot.

Since increases to benefit provisions generate new unfunded liabilities that must be amortized over time, shifting to 3% COLAs with periodic changes to state law would produce a more backloaded contribution pattern for the city, compared with an immediate recognition of the higher benefit levels. That said, now with House Bill 2451 signed into law, the flexibility to forego expanding the number of Tier 1 firefighters receiving 3% COLAs is no longer available. Whether the state will enact similar legislation for any of Chicago’s other retirement systems is uncertain. For example, the law governing the city’s retirement system for police officers contains similar birth date related COLA distinctions.

* From Pritzker’s press release…

Building on efforts to protect Illinois’ first responders and frontline workers, Governor JB Pritzker today signed legislation that codifies longstanding benefits in the Chicago firefighter pensions system. House Bill 2451 ensures firefighters are treated fairly by fulfilling promises made to firefighter pensioners.

“I’ve always believed that hardworking men and women who have earned their pension shouldn’t pay the price for local or state budget challenges,” said Governor JB Pritzker. “HB 2451 creates a system that gives all firefighters certainty and fair treatment. And to make sure that the city can meet its obligations, my administration is working to sell the James R. Thompson Center, which will return to the city’s property tax rolls and is projected to generate $45 million annually for the city and its sister agencies.”

“By signing this bill, Gov. Pritzker has once again demonstrated his commitment to fiscal responsibility and protecting future generations of middle class Chicagoans from massive tax increases,” said State Senator Robert Martwick (D-Chicago). “If we ever hope to right our financial ship, we must finally put an end to the irresponsible behavior that put us here in the first place. This law simply ensures that the city confronts the true costs of its pension obligations and makes the difficult decisions it needs to make today.”

HB 2451 addresses disparate pension benefits among Chicago firefighters. Currently, employees eligible for a pension in the Firemen’s Annuity and Benefit Fund of Chicago (FABF) who were born after January 1, 1966 are granted a 1.5 percent COLA. However, firefighters who may have started on the force the same day, may unfairly receive different benefits based on their dates of birth. The legislation addresses this discrepancy by adjusting the COLA for these firefighters from 1.5 percent to 3 percent.

The legislation eliminates the 30 percent cap on cumulative COLA adjustments. For employees eligible for a 1.5 percent COLA, they would have hit the cap at 20 years. The reforms made in this legislation provides firefighters the ability to plan for themselves and their families.

HB 2451 is effective immediately.

posted by Rich Miller
Monday, Apr 12, 21 @ 9:23 am

Comments

Can the Statehouse spare about $50,000,000 in dimes for CFD pension funding until that Thompson Center site sale actually starts to generate actual meaningful annual property tax revenue?

Comment by ChicagoBars Monday, Apr 12, 21 @ 9:33 am
Heather Cherone via WTTW last Monday:

The firefighters’ pension fund has the worst funded ratio of the city’s four pension funds at just 18.4%, according to city data.

Comment by Perplexed Monday, Apr 12, 21 @ 9:52 am
The mayor complained about a “back room deal” on this bill, which is ironic, because that didn’t happen — and because she probably could have used one. Had she rolled up her sleeves and worked with the firefighters and the GA leadership, she could have cut a deal to just move the 1966 date a few years forward, as has been done many times before. Maybe that’s not the most ideal policy, but it would have saved the city money and would have spared her a high-profile Springfield defeat.

Comment by TNR Monday, Apr 12, 21 @ 10:12 am
==until that Thompson Center site sale actually starts==

Given that Chicago ‘gave away’ the parking meters and the Skyway to balance the budget, what’s left?

Comment by Jocko Monday, Apr 12, 21 @ 10:18 am
Illinois Democrats finally passed pension reform!

They actually made benefits more generous in a pension that is 18% funded

Comment by Lucky Pierre Monday, Apr 12, 21 @ 10:23 am
@Lucky, you ever check the House roll call on thee pension reform bill that was overturned by the Supreme Court? A majority of Dem members voted for it, a majority of Republicans did not.

Comment by Roman Monday, Apr 12, 21 @ 10:43 am
Regardless of how we individually feel about the state’s finances I do hope that everyone here is able to recognize on some level or another having a pension COLA just stop after 20 years is a terrible thing for the pensioner.

Folks that are upset by this change should just start advocating for the removal or cap of the federally taxed retirement subtraction.

Comment by Candy Dogood Monday, Apr 12, 21 @ 10:49 am
=== Illinois Democrats finally passed pension reform===

Meh.

Rauner’s biggest failure was not getting 60 and 30.

You wanna talk policy on this, I mean, yikes, where was Mayor Lightfoot to oppose this? Did Lightfoot and her crew wake up one morning and thought “golly, wonder if there’s anything happening in Springfield we should worry about?”

Its embarrassing for Lightfoot, but then again, that’s her administration’s calling card when it comes to legislative affairs… inept comes to mind, not great.

So, I’d probably aim my ire at the 5th floor of Chicago’s City Hall.

Comment by Oswego Willy Monday, Apr 12, 21 @ 11:11 am
@- Jocko - Monday, Apr 12, 21 @ 10:18 am:

==until that Thompson Center site sale actually starts==

Given that Chicago ‘gave away’ the parking meters and the Skyway to balance the budget, what’s left?

Midway, for pennies on the dollar.

Comment by DuPage Monday, Apr 12, 21 @ 11:44 am
Moody’s is absolutely correct. They mayor has every right to be ticked.

Comment by Downstate Illinois Monday, Apr 12, 21 @ 12:29 pm
=== Moody’s is…===

… a racket.

=== mayor has every right to be ticked===

LOL, the mayor is so grossly inept, her crew too, to how things work in Springfield, the mayor should be ticked how inept she and her crew is handling things in Springfield.

Making Mayor Lightford a “victim” here is a comically flawed look at this.

Comment by Oswego Willy Monday, Apr 12, 21 @ 12:38 pm
Seems to me that all of them are all living in different fantasy lands. The mayor’s is a political fantasy and the GA’s is a fiscal one.

Comment by Boone's is Back Monday, Apr 12, 21 @ 12:45 pm
“LOL, the mayor is so grossly inept”

Hasn’t the Mayor opposed this for awhile now? I may be mistaken, but I recall Lightfoot asking Pritzker to veto this at least five months ago.

Also, I imagine that Pritkzer did consider vetoing the bill, until Georgia resulted in IL/Chicago receiving billions of dollars that were not in the budget.

At that point the CFD told Pritzker, Why do Teachers get so much and we don’t? With the new federal dollars, you can make us whole without asking more from taxpayers

Comment by Julian Perez Monday, Apr 12, 21 @ 12:50 pm
Mayor Lightfoot can never turn down an opportunity to engage in a fight or create one. This is no different.

Comment by Shytown Monday, Apr 12, 21 @ 3:34 pm
==Moody’s is a racket==

But you need those bond ratings to…sell bonds. Carry on Moody’s.

Comment by Southwest Sider Monday, Apr 12, 21 @ 4:45 pm
=== Carry on Moody’s.===

Explain the Illinois constitution, debt, and the bonds.

Being angry-happy about the Moody’s racket only shows ignorance to what really is at play, and why the racket hurts, given the realities of, say, the Illinois constitution.

But please, “carry on”, lol

Comment by Oswego Willy Monday, Apr 12, 21 @ 4:47 pm
=== But you need those bond ratings to…sell bonds.====

Let me be even more crystal clear;

The way Moody’s looks at the state AND the city of Chicago… while ignoring the constitutional differences to bonds the state has, and then the city with different parameters but the same measuring… how is that even honest to any rating?

That’s why I went all “state constitution” and these differences… how can both entities be measured similarly?

That’s right, it’s a racket.

Comment by Oswego Willy Monday, Apr 12, 21 @ 5:24 pm
==Carry on Moody’s.==

Tell me the last time Chicago (or the state of Illinois) defaulted on a bond. Spoiler alert - the answer is never.

Comment by Jocko Monday, Apr 12, 21 @ 6:46 pm