(Recasts with revision to legislation, statement from mayor)
CHICAGO, April 7 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
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
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