CHICAGO Chicago Mayor Rahm Emanuel on Monday removed any mention of new or higher taxes in his legislation to ease the city's retirement funding shortfalls just hours after the bill came under attack by Illinois Governor Pat Quinn.
The mayor last week unveiled a plan to hike property taxes by $50 million a year over five years. Worker's current contributions of 8.5 percent of earnings to the city's municipal and laborers retirement systems would rise to 11 percent over five years. Instead of retirees getting an annual 3 percent cost-of-living increase, the increase would be tied to inflation and skipped in certain years.
Now, it would be up to the city to decide how to raise revenue for pensions within its current tax structure. But the legislation would continue to require Chicago to pay what it owes annually to the funds or the state would withhold money due the city. The bill also gives pension funds the ability to sue the city over payments.
"Working with legislative leaders, bill sponsors, the governor, and our partners in labor, we have addressed their concerns and can now move forward to save the retirements of nearly 60,000 city workers and retirees in Chicago," Emanuel said in a statement.
Earlier on Monday, Quinn told reporters that he objects to the bill because it would force overburdened Chicago property taxpayers to help fund the solution.
"They've got to do a lot better with whatever plan they come up with than just heaping a higher and higher property tax burden on everyday people whether they live in Chicago or anywhere else," the governor said.
In a report on Monday, Moody's Investors Service called the previous version of the legislation a modestly positive credit step but not a permanent fix.
Moody's said that if enacted into law, the measure would immediately reduce the unfunded liabilities in the two funds.
"However, we expect that the (liability) would then escalate for a number of years before declining. Accrued liabilities would exceed plan assets for years to come, and if annual investment returns fall short of the assumed 7.5 percent, the risk of plan insolvency may well reappear," the credit rating agency said in a report.
Emanuel's office has warned that the two systems face insolvency within nine to 17 years unless changes are made. The funding shortfall is $8.4 billion for the municipal system and $1 billion for the laborers system, according to city documents.
Moody's said that if enacted, the law would face potential challenges to its legality under the Illinois constitution, which prohibits the impairment of retirement benefits for public sector workers.
The city's police and firefighters pension systems are not affected by Emanuel's plan. Moody's said city officials are seeking changes to a state law that requires Chicago to increase its contribution to those two funds by $600 million.
"The requirement presents a formidable budget pressure for Chicago," Moody's said.
Last month, Moody's Investors Service dropped Chicago's credit rating one notch to Baa1, citing a massive and growing pension liability that remains a threat to the city's fiscal solvency. Prior to that downgrade, Moody's slashed Chicago's rating three notches in July.
(Reporting by Karen Pierog; Editing by James Dalgleish and Lisa Shumaker)