By: Ted Dabrowski and John Klingner
Gov. J.B. Pritzker dug Chicago’s financial hole deeper this week, signing a bill that increases the pension benefits for Chicago firefighters. That follows his expansion of the Chicago Teachers Union’s collective bargaining powers last week, sure to result in larger budget deficits and more chaos for the city’s school system.
The new pension law grants all Chicago firefighter retirees a 3 percent annual compounded increase (COLA) to their pensions. Prior to the law, retired firefighters born after 1/1/1966 received only a 1.5 percent simple increase every year. Now, those 2,200 additional firefighters will get the 3 percent COLA.
You have to wonder if none of Pritzker’s advisers told him that the Chicago firefighter plan is just 18 percent funded, among the worst funded plans in the country. Or that it and the rest of the city’s plans are running out of assets – the firefighter plan’s assets are less than four years’ worth of payouts. Well-funded plans across the nation have assets worth at least 20 years of future payouts.
Chicago households are on the hook for a combined $63,000 in Chicago-only debt, based on Moody’s calculations. It’s why the city and the school district have been junk rated for years.
Pritzker’s COLA increase runs against what most of Illinois’ political elite already know – COLA cuts are necessary and inevitable at all levels of government. As Greg Hinz said in his review of Wirepoints’ Pension Solutions, “…that juicy perk over time has amounted to megabillions that state government just doesn’t have.”
The COLA hike will cause more financial headaches for Chicago. Mayor Lori Lightfoot says the COLA increase will cost the city an additional $18 to $30 million a year in pension costs. In all, the perk will force taxpayers to pay an additional $850 million over time.
Lightfoot says the new costs to the city will result in another property tax hike on top of the ones she’s already passed, not to mention Mayor Emanuel’s record tax hikes.
Which also makes you wonder why Lightfoot won’t protect struggling Chicagoans by calling for the one reform that can save city taxpayers: a constitutional amendment for pensions.
Lightfoot wouldn’t be alone in calling for the amendment. The Chicago Tribune, Crain’s Chicago Business, the Civic Federation, the Better Government Association and the Civic Committee are all also in support of an amendment. Even former Chicago Mayor Rahm Emanuel eventually supported an amendment – though he was already on his way out of office.
She also has the support of the public regarding efforts to fix the pension crisis. “A whopping 92 percent said it’s at least somewhat important for the city to finally get a handle on its soaring pension costs,” according to a new Chicago Index poll.
One can only hope this latest snub by lawmakers, along with their recent re-empowering of the CTU, will finally get Chicagoans to realize Springfield cares more about rewarding its public sector allies than it does the solvency of the city or resident welfare.
Read more from Wirepoints on the problems in Chicago:
The arguments for tearing apart Chicago Public Schools and replacing it with a universal school choice program continue to pile higher. The system is an abject failure any way you cut it. 
Chicago may think it walled itself off from the issue, but the firestorm is only getting started. 
Neither Pritzker or Lightfoot can escape the reality that they’ve lost control over the city’s crime. One statistic that particularly captures their failure is Chicago’s homicide rate compared to that in big-city peers New York and Los Angeles. 
President Biden said the pandemic is essentially over, but Governor Pritzker issued his 34th Covid Disaster Proclamation. President of Wirepoints and the Steve Cochran Show talk about why Pritzker issued the proclamation, what the Federal Government is going to do about this, and if the Governor’s Office has too much power. 
The biggest news about this bill is that it was passed on the state house on April 9, 2019 and passed in the Senate January 11, 2021. These two dates are nearly 2 years apart. The press does not inform the public properly because I have read nothing about the disparity of the dates in news reports. The General Assembly is all smoke and mirrors.
Illinois and this country cannot continue indefinitely on the path it is on.
At some point the bill will become due and the music will stop.
Well, that’s been said repeatedly literally since the FDR times. Its likely true, but the pathway to the end point you predict is a long, long one if that’s any clue. I guess we ought to be grateful its not here yet even while the thought looms large to most people who have lived outside the reliance of governmental subsidies in particular.
https://www.plansponsor.com/public-pension-plans-thirsty-liquidity/#new_tab
Interesting article on cash management in a substantially underfunded pension plan.
Thanks for the eye-opening Wirepoints chart. Per the Sun-Times article you linked to, it sounds like going from a 1.5% non-compounded cost of living increase to a 3.0% compounded COLA for “2,200 active and retired firefighters born after Jan. 1, 1966,” will add another $850 million to Chicago’s pension benefit liabilities over the actuarial life of the plan. If that’s correct, let’s hear it for “the miracle of compounding”! (Either that, or these beneficiaries are planning to live forever.) I had no doubt Gov. JB would sign the bills to increase the Chicago Firefighters’ pension benefits and expand the… Read more »
Pritzker is buying CFD union member votes, period, for Democrat party candidates.
This is astounding. Is it willful ignorance? Is it unadulterated stupidity? Or is the plan to make the state of IL as bad as possible for a bailout ?
Why is it that an accountant can be held civily and criminally liable for his financial misdeeds and a multi-billionaire like JB Pritzker cannot?
Just asking…
Reasons may include the “engagement letter” together with the text of the CPA’s opinion. The CPA relies on information provided by the client and the client’s not generally under oath. the opinion is often “hedged” on the issues which fall in the gray area. In specific areas like tax shelters the IRS has more stringent rules. Other areas, not so much. Also, often, the CPAs “rely” on legal and actuarial input which have their own gray areas and where the lawyers and the actuaries also have their own exculpatory engagement letters and hedged opinions. Practitioners of these three “arts” are… Read more »
When will other City creditors (secured or unsecured) tune into the following? a) while each new unfunded promise is unlikely to be met in full, each promise increases the amount that is legally “owed.” b) when the train wreck comes, a bankruptcy court (receiver or whatever) will divvy up what’s available among what’s owed. c) those with “contract rights” such as bondholders and pensioners will get some sort of priority. In fact, they may get all there is and other creditors will pound sand. d) as between pensioners and bondholders (presumed to be rich) the bondholders will probably get a… Read more »
This proves this governor has never had to balance a business revenue and expense. Taxpayers in Illinois need to recall this governor and replace him like the Californians are doing to their governor.
This seems like the some of the Dems want to force the issue and officially require taxpayers to cough up even more for Pensions as the Plan went broke. Does the Plan go broke and Pensioners get little or will the taxpayers be required to pay even more?
Great article on Mexican Cartels and Avacado trade
https://www.wbur.org/hereandnow/2020/02/07/avocados-mexican-drug-cartels
From the article:
The cartels asked for a tax in exchange for these services, but Moncada says they became more predatory toward growers over time. Cartels stopped providing the growers with services but kept charging extortion fees, he says.
Replace IL Government for Cartel in this quote, and still spot on.
Unfreaking believable! Is he that stupid? Of course he is! Just keep running Illinois and taxpayers into the ground. Who’s going to pay for all those overpriced pensions? Pensions SHOULD be funded and paid for by the workers not the taxpayers! Guess it won’t stop until there’s no citizens living here!
Great articale. The adam Schuster, city journal articale–‘stop the bleeding’ you guys posted states –“Pensions will take up nearly 15 percent of the city’s budget this year, but starting in 2022, the city’s pension contributions will be actuarially determined”. Can you guys elaborate on what schuster is saying when by 2022 city’s pension contributions will be “actuarially determined”? Does this mean city will have to start making contrabutions on the moodys #s which are approx 2x what city & press admit to? Is there a word for beyond DOOMED??
In general for various public sector pension funds the State legislature has passed laws basing annual state or employer contributions based on a number that suits the legislature rather than the actuaries.
That would be a lower amount than actuarial required.
Another chapter in the Illinois Pension Scam.
Actuaries are mere tools at best, incompetent or corrupt at worst. In Illinois actuaries are pretty much useless puppets.
The statutory contribution for the Fire Pension Fund for 2020 was about $371MM versus the actuarially determined contribution of $467MM or $96MM more. These numbers are from the most recent pension valuation report posted at the Fund’s website. Annual benefit payments and expenses for 2019 were $350MM (and rising).
MsT—Yup, thats what I think Adam Schuster articale is talken about. Its a joke scam on the voter /taxpayers…but these pols still zoom around claiming to be all about SOCIAL EQUITY (giving out one time “trinkets to the indians” fed ARP handouts) but not about the simple math.
State constitutionally protected legislative benefit hikes for an 18% funded (82% unfunded) pension in a state that has not been able to pay its bills on time for years. Might you want to wait until the pension is 100% funded to hike benefits? No? How about waiting until the pension is 90% funded? No? How about waiting until the pension is 80% funded? Waiting until the pension is 70% funded? Perhaps waiting until the pension is 60% funded? Maybe waiting until the pension is 50% funded. What about waiting until the pension is 40% funded. Geez waiting until the pension… Read more »
These pensions will not be paid. And every know it. Wait until the ‘equity’ angle comes out and they discover that hundreds of millions of Black and Brown taxpayer dollars are paying retired old white men. What in the heck is equitable about that? All the intergenerational wealth transfers and stuff. And firefighters are racist, and sexist too. Why again is the city transferring hundreds of millions of dollars in BIPOC taxes to old, retired, racist & sexist white men in other states? That money should be invested in the community to benefit BIPOC. With great arguments like these, the… Read more »
There is at least one flaw in the ointment you’ve constructed. There was no racial requirement for equity when those old white teachers were hired and entered their IL pension system. I don’t disagree with other parts of your argument. Normally it would be a strong one in all likelihood. Its akin to the reparations argument you clearly despise, penalizing people today for legal, if maybe ill-advised, acts of other people (the hiring school districts) made years ago. If you think that’s your argument is right here how can it not be right for reparations based upon equity considerations of… Read more »
James – look at Harvey. Anyone reasonable has to expect that there will be considerable resentment as the poor and mostly minority citizens of the town continue to have to pay for pensions for white policemen and firefighters retired in Florida or Las Vegas. And yes, the political environment today is so wrapped around racial identity I could well see political actions to deprive the pensioners their benefits. Now, to be clear, Harvey has no money, and has been about as corrupt as corrupt can be, so maybe it is an outlier. But I don’t think we can underestimate the… Read more »
Equity overrides common sense, and the constitution. The Supreme court of IL will see which way the wind is blowing, like I’ve always said, it will be a political decision to stiff pensioners. And with these new ‘equity’ arguments, transfering BIPOC $$$$$ to retired, old, white, racists and sexist White men is inequitable. Because it really is a wealth transfer. BIPOC in Chicago/Harvey, etc are taxed, and transferring tens of millions of dollars to white people who don’t live in the state. The pension clause and the ‘contract’ are just an excuse for a clearly inequitable, racist and unconstitutional transfer.… Read more »
It would’t surprise me in the least. Its always best to live below your means; you may that cushion at some point, an attitude not generally shared by those of a younger generation until maybe the last year or so, it seems.
In the post-COVID world, life is going to be very different. Things, like pensions that were once certain, will no longer be a given. Especially if the numbers do not work.
In terms of government pensions in IL much of the problem stems from how poorly such legislation is reviewed prior to voting in my opinion. The “top four” legislators decide what’s what for their own reasons surely having far more to do with politics than mathematics, then put it to a general vote at the last possible day or two before the session ends so that the time for further vetting of any complex bill is essentially non-existent. So, they vote based on ignorance and the all-encompassing desire to “get ‘er done” and go home. “That’s no way to run… Read more »
Isn’t the wait until the last minute antics by design? And while the top legislators appear to be the culprits, it strikes me they are merely proxies for public sector unions in the State, which provide money and votes for the politicians in exchange for compensation and benefits which are considerably at odds with the private sector.. There is a reason why FDR viewed public sector unions as a real threat to the health of government. Public sector unions are entrenched deeply in state and local government, and they are not going anywhere, particularly with the struggles of private sector… Read more »
Politicians locally, statewide and nationally all talk a great game during election seasons to get elected and and re-elected, but elections cost MONEY and tons of it. Since its not a law that election campaigns be funded by public taxes they are funded by corporate, union and private donations. So, it is it any surprise politicians are atuned to those interests more than those of the public at large? Unions contribute, corporations contribute and many very wealthy citizens contribute in big amounts, but when does a contribution become a bribe? Legally that’s only true when there is a an obvious… Read more »
None of the state’s numbers “work”
“Work” is a nebulous term, meaning different things to different people. Your passionate undisclosed definition won’t matter in the least to anyone not fitting your idea of it. I suppose you do WORK in your mind at least, but it likely doesn’t matter a whit to anyone else other than those you support economically. I hope you are a champ to them at least!
Oops, its late, and in my too quick reading of it I misunderstood the meaning of your posting. Please excuse my error!
doesnt surprise me that fatboy is writing more bad checks at taxpayers expense,as long as putzker gets union donations itll be ok!-what a completely incompetent slob,way to go chicago voters,im sure the slob will be re-elected!!!