Illinois Gov. Bruce Rauner on Friday vetoed a bill to help shore up Chicago's municipal and laborer pension funds.
“This is another kick-the-can approach to pension funding that landed Chicago in fiscal crisis in the first place,” Mr. Rauner said in a news release Friday. “This bill will create an unsustainable funding schedule that will lead to tax increases without solving the real problem.”
The measure, which passed the Illinois Legislature on Jan. 9, was intended to improve the pension plans' funding ratios to 90% each by 2057 through higher contributions for certain employees and increased city contributions.
The bill required that Chicago begin making contributions on an actuarial basis to both pension funds in 2023. Revenue received from a 2014 increase in the city's emergency phone surcharge and a new water and sewer tax were expected to cover the increase in the city's contributions.
The bill would also have raised payroll contributions for participants of both pension funds hired after Jan. 1, 2017, to 11.5% from 8.5%, and reduced their age of eligibility for full benefits to 65 from 67. Employees hired on or after Jan. 1, 2011, would have had the option of increasing their payroll contributions to 11.5% from 8.5% in return for their retirement age being reduced to 65 from 67. The bill did not affect employees hired prior to 2011.
The $4.6 billion Chicago Municipal Employees' Annuity & Benefit Fund had $18.6 billion in liabilities as of Dec. 31, 2015, for a funding ratio of 24.7%. The $1.2 billion Chicago Laborers' Annuity & Benefit Fund has a funding ratio of roughly 45%.
“It's like trying to fix a drought with a drop of rain. We see pension funding challenges throughout the state — one-off, shortsighted approaches won't really fix the problem,” Mr. Rauner added in the news release. “We must have comprehensive, long-term pension reform. Let's get it done.”
Illinois faces roughly $130 billion in combined unfunded pension liabilities across its five state retirement systems.
A pension reform proposal, which includes an option for certain state workers to give up some cost-of-living increases or accept limits on how salary increases will affect their benefits, is currently making its way through the Illinois Legislature.
Chicago Mayor Rahm Emanuel called Mr. Rauner's veto “irresponsible.”
“The governor continues to make one irresponsible and irrational decision after another, and his veto today is the latest example,” Mr. Emanuel said in an emailed statement. “This bill passed with overwhelming bipartisan support because it improves our fiscal stability for taxpayers and shores up pensions for thousands of retirees who earned them. Instead of helping secure the future of our taxpayers and middle-class retirees, the governor chose to hold them hostage — just as he has done to social service providers, schoolchildren and universities across the state. The governor's actions are harming the most vulnerable in our state, and the people of Illinois deserve better.”