In the final days of the legislative session, state lawmakers in Illinois approved House Bill 3657, a pension enhancement for police and firefighters that could significantly deepen Chicago’s financial woes.
Governor J.B. Pritzker is urged to reject this bill, as its implementation may add billions to the city’s already mounting pension debt.
The bill carries an initial cost of $52 million in its first year, and by 2055, it could inflate accrued liabilities by an estimated $11.1 billion according to city estimates.
Chicago’s pension crisis is alarming, with Equable’s annual report revealing that seven of the ten worst-funded local pensions in the United States are based in the city.
In the rankings, Chicago firefighters are last, while Chicago police sit in third-to-last place, with both systems housing only about 25 cents of every dollar promised to workers.
The Tier 2 pension system, enacted in 2010, aimed to address the excessive benefits associated with the earlier Tier 1 system, which grants retirees an average of over $93,000 annually.
To counterbalance growing unfunded liabilities, Tier 2 raised retirement ages, capped pensionable salaries, and limited cost-of-living adjustments to either half of inflation or a maximum of 3%.
Yet, rather than striving to alleviate this growing debt and strengthen retirement security for public workers, recent legislative actions are poised to reverse the beneficial reforms introduced under the Tier 2 pension framework.
House Bill 3657 modifies how the final average salary is calculated for Chicago police, transitioning from an average of the last eight years to the higher of the last eight years or the last four years.
This change could potentially exacerbate pay spikes at the end of an officer’s career, thereby elevating pension liabilities.
Another significant adjustment in the bill affects the salary cap that limits pension earnings.
Currently standing at $127,283 with annual increments tied to the lesser of half inflation or 3%, the cap would rise under the new law to start at $141,408 on July 1, 2025, with full inflation taken into account for future adjustments.
Additionally, modifications are made to enhance benefits for surviving family members of police officers and firefighters.
The changes in HB 3657 effectively restore Tier 1 benefits, which were previously altered for more public safety personnel outside of Chicago in 2019.
However, concerns persist that such actions only compound the financial mismanagement already plaguing the city.
With a staggering projected budget shortfall of $1.2 billion by 2026, Chicago already faces challenges including low credit ratings and the potential for increased property taxes.
The financial landscape poses a difficult challenge, emphasizing that this is not the opportune moment to increase costs.
As of June 24, 2023, the bill is in the hands of Governor J.B. Pritzker, who has 60 days to either sign, veto, or amend the bill.
The decision rests on whether he will prioritize financial wisdom by rejecting the bill, possibly averting higher property taxes and steering the city away from pension insolvency.
With an August 23 deadline looming, the state’s leadership is at a juncture that could define Chicago’s economic future.
image source from：illinoispolicy
