City reaches new pension deal with laborers

By Greg Hinz – Crain’s Chicago Business

 

The Emanuel administration has reached a new deal to refinance one of the city’s cash-short pension funds, this one covering more than 5,000 current and retired laborers.

The good news is that the agreement being released today should pass legal muster with the Illinois Supreme Court, which rejected a prior pact on constitutional grounds. The pact is designed to ensure that the fund has 90 percent of the money on hand needed to pay benefits by 2057.

The bad news is that city taxpayers will have to chip in an additional $70 million or so to start, and some of that money will be diverted from a different pension fund covering other employees. Potentially worse, the deal will have to be approved by the legislature and signed into law by Gov. Bruce Rauner, who has balked at signing other pro-Chicago legislation until Mayor Rahm Emanuel convinces other Democrats to back the pro-business, union-weakening structural changes the governor wants.

“It’s a step in the right direction,” said Civic Federation President Laurence Msall, after being given an overview briefing. “But we won’t know whether it’s enough until a complete actuarial analysis is done.”

As described by city Budget Director Alex Holt in a fact sheet and interview, here’s how the deal would work.

At the moment, after the earlier state Supreme Court action, the Laborers’ Retirement & Retirement Board Employees Annuity & Benefit Fund has only about half the assets needed to pay promised benefits and faces insolvency “by 2029.”

To fix that, the Laborers’ Union agreed that anyone hired by the city after Jan. 1, 2017, will have to contribute a total of 11.5 percent of their salary for pensions and retire no earlier than age 65. Under current law, those hired after Jan. 1, 2011, can defer their retirement to age 67 and pay only 8.5 percent of salary. Those hired earlier pay a lesser amount.

To get that money, the city agreed to turn over to the laborers’ pension the roughly $40 million a year it got in a 2014 hike in the city’s 911 telephone tax from $2.50 a line to $3.90. Some of that money was supposed to go to the larger municipal pension fund which covers white-collar workers, but was freed up under the recent Supreme Court decision.

In addition to that $40 million, the city will contribute an extra $30 million a year drawn from city enterprise funds, covering things such as operation of O’Hare and Midway airports as well as water and sewer construction. Those shifts, raising the city’s total contributions by more than 30 percent, will be phased in over five years starting in 2018. Taxpayer costs thereafter are expected to rise $3 million to $5 million a year.

Holt denied the city is “robbing Peter to pay Paul” by shifting phone-tax money that, in part, would have gone to the municipal fund.

“We are in conversation with the municipal fund (and its unions) about whether we can agree on a structure like one we’ve agreed on with the laborers,” Holt said. But if such a deal is reached, “We will have to find a source” to replace a portion of the $40 million.

Cutting the same deal with the unions covered by the municipal fund as was reached with the laborers would cost the city about $500 million a year more than it pays today, Holt said.

In a statement, Emanuel praised the deal as “a tremendous step forward in ensuring that the city’s employees and retirees have a secure retirement while protecting Chicago’s taxpayers.”

Laborers Local 1092 Business Manager Joe Healy said in the same statement that he is “proud to announce” this deal.

Given that the bill is agreed to on both sides of the table, legislative passage seems likely sometime this summer. But Rauner, who has balked at signing other city pension legislation until he gets concessions, has not taken a position on this. City officials said Rauner’s office was being briefed on the new deal this afternoon.

Of the city’s four pension funds, the laborers’ is easily the smallest.

The court tossed out the old pension deal on grounds that workers were being forced to accept lesser benefits after they go on the payroll. The new deal avoids that by inflicting any new pain on newly hired workers, who presumably don’t have to take the job if they don’t like the terms.

Update, 4:40 p.m.—AFSCME, which represents many of the workers in the municipal fund, is taking a pass on whacking the deal. In fact, spokesman Anders Lindall is almost warm about it.

“While we have not met with the city to discuss the pension funding problem, we have always indicated that we want to work with anyone of good faith to address it in a way that’s fair, constitutional and fiscally sound,” he said in a statement. “Of course, every pension fund and every union is different, so we don’t know whether an agreement like this one will be right for the municipal fund and our members who participate in it.”