This proposal of Lightfoot’s was first reported in Crain’s Chicago Business, with excerpts at Capital Fax.
According to knowledgeable sources in Chicago and Springfield, after weeks of preliminary maneuvering [Chicago Mayor Lori Lightfoot] is pitching nothing less than a state takeover of the city’s cash-short pension funds, which under current law will require upward of $1 billion in new city tax hikes over the next three years to reach a path to full actuarial funding. Her proposal would consolidate city pension money with smaller downstate and suburban pension funds in a new statewide system. In some cases, those non-Chicago funds are even worse off than the city’s.
So, on the one hand, it’s a small bit of good news, for Pritzker to have rejected this trial balloon. On the other hand, it’s a disappointment that Lightfoot would have suggested this in the first place. And on the third hand — well, there is more to the story.
Here’s a bit of context: the Illinois Municipal Retirement Fund (IMRF) is a statewide pension fund which functions in a multiple-employer fashion; each participating employer benefits from the centralized administration of the fund but is responsible for the contributions for its own employees; according to the brochure for prospective participating employers,
IMRF is a centrally administered but locally operated and funded pension program. Each employer builds up its own reserve account to provide retirement benefits for its own IMRF members. . . .
Cities, villages, townships, park districts, fire protection districts, sanitary districts, and other local districts with general continuous power to levy property taxes may choose to join IMRF. Certain local governmental units without taxing authority also ma participate in IMRF.
Later, the brochure states more specifically,
Employer and member (employee) contributions and investment earnings finance IMRF benefits. Each employer pays the cost of providing benefits for its own employees. Employer contributions are placed in a separate reserve account for each employer. Employer reserve accounts are credited each year with investment earnings, proportionate to the size of the employer’s account and based on the entire fund’s investment income for the year. When a member retires, IMRF calculates the cost of the pension. All of a member’s contributions are applied toward the cost of his/her pension. The balance of the cost is charged to the employer’s reserve account.
In other words, it’s not a free lunch.
But what Lightfoot appears to have suggested is not necessarily that Chicago join the IMRF for its municipal employees. Instead, the status quo in Illinois is that, although municipal employees participate in this consolidated fund, police and firefighters do not necessarily participate in the IMRF, but have rinky-dink pension funds managed individually by their individual police or fire department, with a total of 356 police and 297 firefighter funds (as of 2016). As an indicator of how foolish this is, 43% of all public pension plans in the United States are Illinois plans. Many of these are just as poorly funded as Chicago’s funds, and the average funding level (again as of 2016) was 57.6%. And among Pritzker’s proposals is a task force to evaluate a consolidation of these pension funds, in order to provide the same efficiency of administration as the IMRF.
But even this doesn’t get to a state bailout, and the city funds are already large enough that they should have the economies of scale that the smaller funds lack.
So was Lightfoot trying to pull one over on taxpayers, by implying that the state already covers suburban and downstate fire and police pensions or that the structure of the IMRF includes state money? Is she grasping at straws?
I can only repeat, again and again: there is no solution to the woefully underfunded pensions, in Chicago and in Illinois, that does not involve benefit cuts subsequent to a 2020 constitutional amendment or municipal bankruptcy. And the sooner Pritzker and Lightfoot figure that out, the better off we’ll all be.