The pension debt of Chicago has reached an alarming $37.2 billion in 2023, as revealed in the city’s latest comprehensive financial report. This debt increase, despite a $2.6 billion pension payment by former Mayor Lori Lightfoot in her final budget, has made it more challenging for the current Mayor Brandon Johnson to address the issue, as he has pledged not to raise property taxes, a significant revenue source for the city.
The increase in the pension debt is attributed to several factors, including a pension fix for Chicago police officers that removed a birth date restriction and increased the annual cost of living adjustments for Tier 1 pensioners, adding $1.06 billion to the police pension fund’s total liability. Additionally, a decrease in investment return rate assumptions increased the city’s overall liability by about $642 million.
To address the issue of ensuring benefits for certain pensioners are at least as robust as Social Security, Mayor Johnson has convened a special working group. The report from this group, expected in the next month or so, will not present a grand plan to secure more funding but will focus on legislative proposals to ensure that Tier 2 and Tier 3 pensioners’ benefits pass the “safe harbor” test.
The challenge of paying down pension debts without compromising city services is ongoing, with internal discussions focusing on finding efficiencies and securing more funding for the regular city budget and pensions. The city is also exploring new revenue sources and potential adjustments to its expectations for tax dollars from the city’s casino.
However, the temporary casino has underperformed expectations, generating just $5.5 million in local tax revenues from January through May of 2023, compared to the $40 million projected for the entire year in Johnson’s 2024 budget. The construction timeline for the permanent casino has been called into question, and its ability to generate the expected $200 million annually is uncertain.
Despite these challenges, city officials remain optimistic that the pension funding status will not be viewed as a crisis as it was 10 years ago, with Jill Jaworski, the city’s chief financial officer, predicting that unfunded pension liabilities will stay “relatively flat” in upcoming years before beginning to fall.
