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Stop the Budget Bleeding

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Stop the Budget Bleeding

Chicago needs a large dose of pension reform. April 6, 2021
Economy, finance, and budgets
Politics and law

Last fall, Chicago mayor Lori Lightfoot presented what she described as “likely the most painful budget we have ever faced as a city,” one that “will ensure our city will bounce back stronger and more resilient than ever before.”

Taxpayers will begin feeling that pain soon. Fines enabled by automated cameras for drivers going only six miles per hour over the speed limit are just one new way that the city is looking to nickel and dime its residents to raise cash. Last year, Lightfoot promised that the new budget would spread this pain evenly, but the city council passed a budget that falls short of the mayor’s rhetoric. Taxpayers will feel the pinch from $94 million in property tax increases, a three-cents-per-gallon gas-tax hike worth $10 million, and various regressive fee hikes intended to raise $38 million, including those speeding tickets—but their sacrifice won’t be shared because the mayor caved to union pressure and canceled savings from proposed layoffs of city employees.

Forcing city residents—many already struggling economically from the effects of the pandemic—to pay even more won’t fix the root cause of Chicago’s budget issues. Unsustainable growth in pension costs is the primary reason why Chicago hasn’t closed a fiscal year with a balanced budget since 2003. By 2023, annual pension costs will be $1 billion higher compared with when Lightfoot took office. In fact, the city alone has more pension debt than 44 U.S. 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. This means that investment losses will drive taxpayer costs even higher than reported in current budget projections.

A solution exists to the growing burden of pension costs for Chicago and other Illinois cities, one that would create a more sustainable system: an amendment to the state constitution allowing city leaders to modify future unearned benefits.

Lightfoot’s predecessor, Rahm Emanuel, called for such an amendment in a December 2018 speech:

What kind of progressive, sustainable system guarantees retirees 3 percent annual compounded pay increases when inflation has been at basically zero and current employees have at times been furloughed, laid off or received 1 percent raises? . . . There is nothing progressive about 3 percent compounded raises for retirees and furloughs for workers. The mantle of progressivity must not just be more taxes on the wealthy, it must be more respect for our workers’ paychecks.

Research from the Illinois Policy Institute shows how an amendment that protects already-earned benefits but allows changes to their future growth rate could enable balanced pension reform. Some options that an amendment would put on the table include pegging automatic annual benefit increases to inflation, raising retirement ages for younger workers, placing a cap on pensionable salary, and suspending annual cost-of-living increases to allow inflation to catch up to past benefit growth.

Under Emanuel’s administration, Chicago taxpayers were hit with $864 million in annual tax hikes. Residents have been fleeing the city: Chicago has posted five consecutive years of population loss. Adding to the tax burden will only worsen this outmigration problem.

It’s time to stop the budget bleeding. Fixing the pension crisis is the best place to start.

Photo: Creative life, looking for special pictures./iStock