UPDATED (4/1/24): Chicago’s fixed-cost-to expenditure graphic has been updated with new 2022 data from S&P. 32% of Chicago’s budget was consumed by fixed costs in 2022, as compared to 43% in 2021.
Chicagoans have suffered under the nation’s worst municipal pension crisis for decades. Today, the city’s residents are on the hook for more than $52 billion in pension debts, the equivalent of $45,000 per Chicago household. And the pressure pension costs put on the city and CPS’ budgets are only going to mount as the federal government’s covid bailout money finally runs out.
The retirement security of city workers and the future prosperity of Chicago residents are both at risk.
Chicago Mayor Brandon Johnson did create a Pension Working Group early in his administration with the purpose of developing “a sustainable path forward for the city’s pension funds.” But the group is comprised of government officials, lawmakers, union representatives, local activists and political analysts; there’s no one to represent the best interests of ordinary Chicagoans or the city’s business community.
That lack of representation is why Wirepoints recently joined with the Technology & Manufacturing Association, Illinois Policy Institute and the Center for Pension Integrity in drafting a letter to Mayor Johnson regarding the city’s worsening crisis. We’re calling for the Pension Working Group to base its recommendations off the core principles created by the Society of Actuaries.
Following those principles is the best way to ensure Chicago finds a sound and sustainable solution to its worst-in-nation pension crisis.
The open letter we have sent is below.
An open letter to Mayor Brandon Johnson on the forthcoming recommendations of his Pension Working Group
Dear Mayor Johnson,
We appreciate your establishment of the Pension Working Group to address the city’s growing public retirement crisis.
Chicago’s public pension debts continue to put a strain on the city’s budget and threaten the future prosperity of its residents and its pensioners. The total official unfunded pension liability for the city and its sister agencies now exceeds $52 billion, the equivalent of $45,000 per Chicago household. By most measures, Chicago has the worst funded pensions among the nation’s largest cities.
We, the members of the Taxpayer Pension Alliance, represent a number of concerned Chicagoans and have come together to advocate for sound and sustainable solutions to this critical problem.
We urge you to ensure your Working Group considers the below elements while crafting final recommendations. The elements are informed by the 2014 Blue Ribbon Panel Report written for the Society of Actuaries (SOA).
- A requirement to have any proposal scored by independent, professional actuaries.
- A requirement to reach and maintain 100% funding for all plans within 20 years.
- A requirement to reduce the burden on the next generation of taxpayers by adopting a level-dollar amortization schedule.
- A moratorium on any benefit increases until plans are 100% funded.
- A requirement to enroll participants in Social Security if Tier II plan provisions are found to be in violation of ERISA.
- A ballot initiative for a constitutional amendment that replaces the current pension clause, giving the General Assembly the power to improve the retirement security of public sector workers while reducing the pension burden on taxpayers.
Please let us know if you need further details or clarifications.
Sincerely,
Taxpayer Pension Alliance
- Ted Dabrowski, President, Wirepoints
- Josh Bandoch, Head of Policy, Illinois Policy Institute
- Dennis LaComb, EVP and Chief of Staff, Technology & Manufacturing Association
- Ed Bachrach, Founder, Center for Pension Integrity
Background on Chicago’s Pension Crisis
Pension debts have made Chicago the nation’s extreme outlier when it comes to strained city budgets and overburdened residents. As shown in the Appendix, Chicago ranks last across many of the financial and demographic metrics that matter most. Without proper reforms, Chicago’s debts will continue to grow and overwhelm the city’s future generations.
- Chicago pensions are among the worst funded in the country when measured by the ratio of assets to annual payouts. Those asset-to-payout ratios have collapsed to single digits over the last two decades, risking total depletion if a serious economic downturn occurs.
- Chicago’s pension shortfall is often reported as $35 billion, the debt total of the four city-run funds. But the true burden on taxpayers must include the pension debts for Chicago’s teachers, its park employees and CTA workers. That pushes the total shortfall to $52 billion, the equivalent of nearly $45,000 per Chicago household. Worse, Chicago’s actuaries show those debts won’t peak for another 10 years.
- The city’s payment ramp, extending through 2055, also increases the intergenerational burden. That’s something the Society of Actuaries’ 2014 Blue Ribbon Panel, which included the Civic Federation’s Laurence Msall and New York’s Richard Ravitch, condemns. Future Chicagoans will pay $86 billion in contributions between 2040 and 2055. That’s far more than the $65 billion Chicagoans have to pay over the next 15 years, from 2024 to 2039.* The Blue Ribbon Panel says municipal services should be paid for when received and not shifted to future generations.
- The Society of Actuaries also recommends officials disclose all pertinent reform plan information, including risks involved and any stress-test results, before moving forward. And any changes should be considered and debated over the course of at least two years before they are passed into law. That’s particularly important for any proposed Tier 2 changes that will increase the burden on Chicagoans. Lawmakers’ original passage of Tier 2 in 2010 was marred by a lack of analysis and transparency.
It is impossible to predict whether any pension plan will become so distressed that it defaults on paying benefits. That said, the forces impacting that risk include precariously low funding levels and an unwillingness of taxpayers to pay an exorbitant amount for services already rendered.
Chicago’s pension crisis will not be solved via more reamortizations, pension obligation bonds or tax hikes. Such “fixes” will only prolong and further exacerbate the city’s housing, migration and quality-of-life issues. Instead, a comprehensive, long-term solution, based on actuarial best practices, is essential to restoring confidence and competitiveness to Chicago.
Appendix.
Chicago’s pension costs and its unfunded liability make the city the extreme outlier nationally when it comes to the burden it creates on its residents and its budget.
The fixed costs of Chicago’s pension and general debts makes the city uncompetitive vis-a-vis the nation’s other big cities. Those costs will continue to negatively impact taxes and services, further pressuring the city’s out-migration, home values and quality-of-life issues.
Chicago’s pension funds are running out of money and are among the worst funded in the country when measured by the ratio of assets a plan has relative to its yearly payout. Those asset-to-payout ratios have collapsed to single digits over the last two decades, reflecting the funds’ fall towards insolvency. Healthy funds have a ratio of 20 or more.
Chicago can’t increase taxes without inflicting even more damage to its economic competitiveness. Chicago commercial property taxes are already the nation’s highest among big cities.
The city’s lack of competitiveness across fiscal and quality-of-life issues, including crime and education, has had a dramatic impact on Chicagoans’ home values. The expectation of higher taxes and cuts in services will continue to put pressure on Chicago home values.
The catch-all impact of the burdens and quality-of-life issues Chicagoans face is reflected by the city’s long-term population decline. When compared to the turn of the millennium, Chicago and Detroit are the only major cities to suffer a loss of people.
Chicago has the worst credit rating in the country among big cities with the exception of Detroit. Chicago was able to shed its junk rating only because of the billions in federal public and private aid during covid. The city’s pension crisis will reemerge as those federal funds dry up.
Audio and summary 
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
Expect no retraction or apology. This what they do.
Except Mayor BJ and his thuggish administrators don’t read Wirepoints. Try telegram.
This is what we need! More people need to take action. Pension reform isn’t exactly the most exciting topic, but this is how movements start. Hopefully, more people with expertise in public accounting will participate. How can others get involved?
Rest assured, everything will run through Martwick if they are looking for bailout from State.
Also, astounding that there is no actuary included in CTU/Brandons Pension Working Group to achieve “a sustainable path forward for the city’s pension funds.”? I can only imagine what Pension Working Groups definition of “sustainable” is? And sustainable for who?
They must be really dense to think that Illinois can bail them out.
Illinois has a ginormous hole (actuarial term of art) in their own state pension systems, though not quite as egregiously underfunded as Chicago’s.
The only pensions in the whole state that are in a somewhat good condition are IMRF, as they have been forced to make full contributions.
Has someone calculated what percent of salary is needed to fully fund the overly generous tier I salaries?
I think Brandons response will be that it is an attack on “working people”. I’ll give $100 to the first reporter that asks him if by working people he means members of a public sector union.
Like all good practitioners of doublespeak, Johnson likes to cloak his committees, focus groups and other shadowy entities with words including ( but not limited to) “ workers “ , “ social “, “people’s “ and “ justice/ action/ change “. What a load of Orwellian garbage.
TIME TO FILE BANKRUPTCY LIKE DETROIT
Spot on Kevin. Chicago should get it done while a Dem is in the White House like Detroit did with Obama. This way the Chicago government retirees won’t have to feel any pain.
First municipalities need the right to file for bankruptcy in Illinois without authority from the state. Currently, they do not.
Bankruptcy is a vital tool in governmental bargaining toolbox. You may never need to use it, but the other side of the bargaining table needs to know it’s there.
I wonder how many people would then stop buying muni bonds of all stripe—probably most, don’t you think? At the very least you’d have to expect the interest payable on all such bonds would have to rise to compensate the investors for the extra risk you are proposing here. If a city government could freely seek bankruptcy at will more would do it presumably.
I’m guessing plan B is to destroy the dollar and pay off debt denominated in dollars with CBDC or some shitcoin. I’ve read white papers proposing a programmed interest rate in CBDC’s, which would depreciate all hard currency very quickly. We need to get together and form groups and organizations to fight against this. We’re dead meat if we all stand around pissing in the wind.
Dave, you could start stacking and insulate yourself somewhat from dollar depreciation and loss of purchasing power.
Thank you for this wirepoints. Maybe the mayor will ignore it, but good citizens will appreciate the truth when they see it.
First things first – Like at an AA meeting will Mayor Johnson and his ‘Pension Working Group’ acknowledge the facts as presented by the WP consortium? If not, then it’s all largely just a waste of time and a cover for more taxes to be used for feathering unions and the connected.
Good luck getting Johnson to quit crying racism for five minutes to even glance at your missive. In fact, I fully expect him to say it’s not the place of a bunch of white people to tell him how to run Chicago and accuse you of being racists and treating him as an ignorant black man. It’s all the guy has to cover his glaring ignorance and ineptitude.
This isn’t really a priority for Mayor Root Cause. Just like property tax relief isn’t a concern for Governor Carnival Barker. The telltale sign that these things don’t matter is the formation of a task force or committee to address the problem. This allows the pandering politicians to pretend they have taken action when they have no real intention of addressing the issue at all.
Why do you shoot down everything? Your attitude is terrible!!! Don’t pay attention to Johnson or Pritzker. This is how movements start. Getting people together, finding common ground, and pooling resources is a critical first step in fighting back. Eventually, a plan, leadership, resources to draw from, and organizations will materialize. Nobody is going to invest in something if they’re not confident others have their back. I’m not making this stuff up. I’ve done lots of research. This is a winning formula and has made this nation the greatest on earth. Here’s a pamphlet from another world. Everything on the… Read more »
Everything in here is solid. Psychologists, sociologists, and politicians have been picking apart these winning formulas for decades. People behind Johnson and Pritzker are doing the same as well. If you want current hard core studies with peer review, I can post some of the most cited stuff ever. It’s really hard reading though. Mark is completely wrong about this not being a matter of perceptions, opinion and psychology.
Dave, I wish you well in your attempts to change the death spiral of Illinois. I don’t think you stand a chance in hell of doing anything that drives even the smallest of positive change, but I still wish you well. I would advise you move on from me though, as I’ll continue to call it as I see it. Thankfully, Wirepoints allows individuals to have differing opinions. I promise to vote for you as Governor if you ever take the plunge and I’m still around.
I thought moving away fixed everything! Maybe the problem is you if you’re still bitter and negative. I look forward to not listening to your show if you’re who I think you are.
If you think political advisors behind Johnson, Pritzker and others are reading sophomoric, outdated stuff like that you are out of touch. You might want to go to one of the seminars for political advisors on political communication and persuasion to catch up.
I posted it because it’s easy to read and relevant. Of course they’re not reading it. There’s a central theme present in old and successful materials that’s lacking in current efforts: working together, positive attitude, bravery, strong goals, strong leadership, etc.
We can go into the science behind them. The core of Johnson’s & Pritzker’s campaigns is the projection of ineptitude, helplessness and the necessity of the state, the exact opposite of competence and agency promoted in the pamphlets. This website has a substantial faction of defeatists, which also deters action.
https://www.semanticscholar.org/paper/Perceived-Self-Efficacy-in-the-
Exercise-of-the-Bandura/7a13c57f0020b1a32f3f775c1ee862c15f172618
https://psycnet.apa.org/record/2021-54742-004
His advisors are seeped in far left twitterati leftism.
You are really in left field for showing pictures of 1940s pamphlets. That’s your source material? Really? Can’t you quote some Steven Covey or Malcolm Gladwell? Get that garage sale junk out of here!!!! Those fresh mildew smelling pamphlets aren’t worth the paper they are printed on when dealing with illiterate Marxists determined to divide us all and create havoc. Here are more relevant writings, not those pamphlets. Montesquieu wrote in Spirit of the Laws, VIII,c.12:] ‘When once a republic is corrupted, there is no possibility of remedying any of the growing evils but by removing the corruption and restoring… Read more »
As usual, you never fail to live up (or down) to your name. Thanks for the laugh! Why are you here trying to throw the game to opposition? Wouldn’t it make more sense to go on vacation before the presumed meteor hits?
Sending that letter to Zippy is equal to sending
The letter to the closest garbage can. Brandon
Could not care less, remember his conversation after winning the mayoral race,
“First we get the money”, that tells you his motives. Sending a letter to uncle Joe at 1600
Pennsylvania Ave about closing the border gets you the same response. Chicago is
The great ship that cannot float, the water is going over the bulkheads, lifeboats away.
BLM Brandon is too dumb to understand most of this. He’ll just want to shore up the CTU pensions and say the heck with the rest of it.
Expect to be ignored.
But in the meantime the city has hundreds of millions of dollars to spend on illegal aliens. Makes sense to me. More nonsense because of democrats.