Chicago’s public pension crisis has gotten to the point where some are actually worried that the third-largest city in the United States will go the way of Detroit.
The Windy City’s public pension system is one of the most poorly funded in the country and it has saddled the city with crushing debt, according to a recent New York Times report.
In fact, the pension fund for retired Chicago teachers “stands at risk of collapse.”
“The city's four funds for other retired city workers are short by $19.5 billion. At least one of the funds is in peril of running out of money in less than a decade,” the report notes.
“And starting in 2015, the city will be required by the state to make far larger contributions to the funds, which could leave it hundreds of millions of dollars in the red — as much as it would cost to pay 4,300 police officers to patrol the streets for a year,” it adds.
Illinois lawmakers, who essentially control Chicago’s pension system, have made little to no progress solving the problem because no one wants to entertain the politically unpopular notion of cutting the benefits of public sector retirees to save money. With that option taken off the table, lawmakers have been left scratching their heads over a possible solution.
Granted, Detroit’s problems are much worse than Chicago’s, but the pension liabilities crisis in President Obama’s hometown threaten to upend its finances completely.
“Chicago has put aside the smallest portion of its looming pension obligations,” the report continues, citing a study issued this year by the Pew Charitable Trusts.
“Its plans were funded at 36 percent by the end of 2012,” the report adds. “Federal regulators would step in if a corporate pension fund sank to that level, but they have no authority over public pensions.”
Chicago's troubles, experts say, were years in the making. They are the result of city contributions under a state-authorized formula that failed to accumulate nearly enough money, two economic downturns in the 2000s that led to heavy investment losses, and an impasse in the State Capitol despite urgent calls to cut costs of the state's own pension system. Illinois, which has the most underfunded state pension system in the nation, controls Chicago's benefit and funding levels.
Gov. Pat Quinn, a Democrat, last week announced he was withholding lawmakers’ paychecks until they come up with a solution to the unfunded liabilities problem.
Top Democrat lawmakers responded by suing the governor.
“That was a drastic step but obviously a necessary one," Mr. Quinn said, describing the pension crisis as "the biggest, most important economic challenge we'll ever have."
Rather than mess with pension plans, some have suggested increasing taxes as a way to address the city’s financial woes.
But Mayor Rahm Emanuel says that option is a no-go.
"What the system needs is a hard, cold dose of honesty," Emanuel said. "I understand the anger. I totally respect it. You have every right to be angry because there were contracts voted on."
He added: "People agreed to something. But things get updated all the time."
Click here to read the full Times report.
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