Chicago’s pension debt increased by approximately 5% last year, reaching $37.2 billion as of December 31, 2022. This increase was due to changes in pension assumptions and legislation, as outlined in the city’s annual financial report. The debt affects the pension funds for firefighters, police officers, municipal workers, and laborers.
Mayor Brandon Johnson, who took office in May 2023, inherited this pension burden and is seeking new revenue to address it. He established a pension working group to find long-term solutions, but no official proposals have been made yet. Johnson and city council members are currently reviewing the city’s revenue sources to potentially change their mix and increase funds.
A significant portion of the city’s property-tax levy, around 80%, goes towards pension costs. Johnson’s predecessor, Lori Lightfoot, implemented an automatic property-tax increase tied to inflation to address rising costs, but Johnson halted this as part of his campaign promise.
The underfunding of pensions over several decades has led to Chicago’s massive pension liability, which poses a significant challenge to the city’s budget and credit ratings. However, increased contributions and advance payments by the Lightfoot and Johnson administrations have slowed the debt’s growth.
Justin Marlowe, a professor at the University of Chicago Harris School of Public Policy, noted that while increased contributions have helped, they are being eroded by rising interest rates and inflation. He commented that this year, all the negative macro trends are hitting the pension liability hard.