Chicago Mayor Rahm Emanuel on Wednesday proposed issuing $10 billion in bonds to improve funding in the city's pension funds and endorsed amending the state constitution to allow for reform struck down by the Illinois Supreme Court in 2015.
Mr. Emanuel, who will leave office in May, said in a speech to the Chicago City Council that he is proposing the issuance of "fund stabilization bonds," which would "immediately increase the health of our pension funds to levels we have not seen in at least a decade." Noting the bond issuance would improve the average funding ratio of the city's four pension funds to 50% from 26%, he said while the plan contains some risk, the ability to issue the debt at current low interest rates would be possible due to projected investment returns by the city's pension funds, which he said have never seen an annualized return of lower than 8% for any 30-year period.
He cited additional required contributions totaling $276 million to the $2.5 billion Chicago Policemen's Annuity & Benefit Fund and $895 million Chicago Firemen's Annuity & Benefit Fund in 2020, and an additional required $310 million total for the $4.2 billion Chicago Municipal Employees' Annuity & Benefit Fund and $1.2 billion Chicago Laborers' Annuity & Benefit Fund in 2022. With the bonds, Mr. Emanuel said, citing the police and fire contributions, "new revenue required in 2020 would drop from $276 million to $76 million."
Mr. Emanuel's press office posted details on the ordinance he has introduced, which creates the Dedicated Tax Securitization Corp. and established the framework to issue up to $7.7 billion in bonds issued by the DTSC to securitize the city' income tax, personal property replacement tax and residual sales tax revenues, and up to $2.3 billion in bonds issued by the city of Chicago, secured by its water and sewer tax, leveraging "revenues already pledged" to the municipal employees' pension fund.
The proposal further says the cost of the city's pension debt is 7% to 7.5% and the current cost of the city's bonded debt is 2.5% to 6.25% and thus "through the fund stabilization bonds, the city can refinance a portion of its existing high cost pension debt with lower cost bonded debt."
Noting how interest rates have been rising, Mr. Emanuel urged the City Council to act quickly on the bonds. "There is a window in the market today for this to work. At some point, that window of opportunity will close," he said.
Mr. Emanuel also endorsed a state constitutional amendment allowing for a state progressive income tax, promoted by Gov.-elect J.B. Pritzker, along with an amendment allowing for a change in cost-of-living adjustments for the city's pension funds.
The Illinois Supreme Court had ruled in March 2016 that an earlier pension reform law, signed by then-Gov. Pat Quinn on June 9, 2014, and which took effect Jan. 1, 2015, for the municipal employees and laborers' pension funds, was unconstitutional. The court cited the state's constitutional clause that pension benefits "shall not be diminished or impaired." The law raised employee and employer contributions and reduced retiree cost-of-living adjustments for participants in the two plans.
Mr. Emanuel also said he endorses efforts by some state legislators to legalize recreational marijuana and bring a casino to Chicago to create new revenue that would be dedicated to funding the pension plans.
