The Equity Factor

Chicago Pension Deal Could Cost Taxpayers Dearly

Mayor Rahm Emanuel’s deal is a step towards solving the deep pension problems, but there’s still a lot of work left.

Rahm Emanuel testifying at the Illinois House Committee Hearing on Personnel and Pensions in 2012. Credit: AP Photo/Seth Perlman

Chicago Mayor Rahm Emanuel’s proposed pension deal with the city’s unions could cost property owners in the Windy City way more than initially advertised. The deal, which is only for roughly half of the city’s unionized workforce, would raise the gross property tax levy by almost a third by 2020, according to Crain’s Chicago.

Emanuel, like so many city mayors before him, stalled this fall, trying to kick the can down the road yet again. But Monday’s proposal would raise the city’s tax revenues by $750 million over the next five years. Problem is, the proposed agreement only sorts out the situation for office and building trade workers and neglects the elephant in the room: police, fire and public school teachers. The Chicago Teacher’s Union called the deal a “heist” in a release yesterday.

And now everyone from retail shops to homeowners could face significantly larger tax liability if the deal is passed. “Chicago’s home, office and retail owners could be on the hook to pay hundreds of millions of dollars a year in higher taxes, with at least some impact on the city’s business climate,” Greg Hintz wrote at Crain’s Chicago.

This isn’t just going to impact the taxpayers. Pensioners will see benefits cut, which would face stiff challenges in court — pension benefits are protected by the Illinois Constitution. (Pension benefits are also protected by the Michigan Constitution, but Detroit can reduce them under bankruptcy protection.)

Emanuel rebuffed, saying that pensioners won’t see their benefits cut. “I’ll tell you what a cut looks like, not getting a retirement check. That’s a cut,” Emanuel told reporters. The Chicago Tribune clarifies that pensioners expected to pay more into their pensions now and receive less down the line.

I asked Cate Long, who heads up Reuters’ MuniLand blog and is has written extensively on municipal pension troubles, what, if anything, this accomplishes.

“What Emanuel is proposing appears to only address pensions for public employees who are not teachers, police or fire,” she wrote in an email. “But it is teachers, police and fire who generally make the highest salaries — and require the highest pension payments — in a local government.” This, as we have written time and again, is one of the tougher issues facing some municipalities across America. And while pension reform might seem like just another terribly boring machination of city politics, the effects can be deeply personal for longtime city employees.

This fall, the city’s pension shortfall was estimated at $19.5 billion. It’s worth mentioning that though Emanuel has been cold throughout this entire process, his administration is finally making moves to address the burden of pension debt. But if Emanuel’s deal is passed, property owners could shoulder a lot of that burden and see steep taxes through 2020.

“Emanuel’s proposal is a tiny baby step,” Long said. “But we need to see more financial analysis before taxpayers, rating agencies and bondholders can form a view of its ability to solve the massive fiscal problems facing Chicago.”

The Equity Factor is made possible with the support of the Surdna Foundation.

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Bill Bradley is a writer and reporter living in Brooklyn. His work has appeared in Deadspin, GQ, and Vanity Fair, among others.

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Tags: chicagorahm emanuelpensions

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