By: Mark Glennon*
Here’s what Chicago taxpayers face under the proposal passed today by the Chicago City Council’s Finance Committee, supposedly to stabilize one of the city’s four pensions, MEABF:
This year and next, taxpayers will contribute $163 million to the fund. The ramp up thereafter is $267 million in 2018, $344 million in 2019, $422 million in 2020, $499 million in 2021 and $577 million in 2022.
Then, the real shocks start. Beginning in 2023, the taxpayer contribution will be based on the “ARC.” That’s a purported “actuarial” calculation that supposedly would take the pension to 90% funding by the year 2057. The city estimates that contribution would be $879 million in 2023. It keeps going up, passing $1 billion in 2030 and reaching $1.9 billion in 2057.
You might think those contributions would reduce the unfunded liability rapidly. Nope. It’s projected to keep rising from today’s $9.8 billion until 2040 when it reaches $15.4 billion.
And surely, you probably think, this isn’t all based on old accounting using a ridiculously optimistic assumption about what the pension’s assets will earn. Wrong again. The assumption is the widely ridiculed 7.5%.
By “taxpayer contributions” I’m including proceeds from the proposed water and sewer tax. That tax, however, isn’t enough to cover the contributions described above. It would start at $56 million and top out at $242 million in 2020. The difference will have to come from other taxpayer sources.
It’s a similar story for Chicago’s other three pensions.
Recall that one of the primary reasons the state pensions are in crisis is the “Edgar Ramp.” Effective in 1996, it deferred the problem to the future. Under it, taxpayer contributions during the first six years increased by a little over 100%. But they’ll increase under the MEABF proposal over 500% in the first six years — and that’s if you believe the city’s projections, which you shouldn’t. (The MEABF proposal is flatter than the Edgar Ramp in far more distant years, but what does that matter? By the time those years come, in both cases, they’ll be extended again by necessity.)
The Edgar Ramp didn’t work. This MEABF proposal won’t work. Chicago can’t adequately fund its pensions now and it won’t be any different tomorrow.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.