April 2, 2014 / 11:31 PM / 4 years ago

Chicago mayor's pension plan passes key House panel

CHICAGO, April 2 (Reuters) - Chicago Mayor Rahm Emanuel’s plan to ease the city’s pension funding shortfall popped up in bill form on Wednesday in the Illinois Legislature and won approval by a key House of Representatives committee.

House Speaker Michael Madigan, a Chicago Democrat, introduced the bill, which passed the House Personnel and Pensions Committee in a 6-4 vote.

However, Madigan amended the bill after the committee vote and the measure was not taken up by the entire chamber on Wednesday. A spokesman for Madigan was not immediately available for comment on when a House vote would take place.

Meanwhile, the mayor’s plan was running into opposition from Republicans in the Democrat-controlled Senate.

“The bill needs bipartisan support,” said Rikeesha Phelon, a spokeswoman for Senate President John Cullerton, a Chicago Democrat. “So it’s a roll call question right now.”

Emanuel’s office on Tuesday released details of a proposal aimed at two of the city’s four retirement systems that would raise property taxes and reduce retirement benefits for affected city workers.

Under the plan, the city would collect $250 million more in property taxes over five years while workers’ current 8.5 percent contributions to the city’s municipal and laborers retirement systems would rise 2.5 percentage points over five years. Annual 3 percent compounded cost-of-living pension increases would be replaced by raises tied to inflation and would be skipped in some years.

In addition, the city would tap segregated money for airports and utilities to cover pension funding increases for workers in those departments.

Chicago warned that the two systems face insolvency within nine to 17 years.

The city’s police and firefighters pension systems are not affected by the new plan. The state legislation previously passed legislation for those two funds that kicks in next year and forces Chicago to pay $600 million into the two funds.

In testimony before the House committee, Madigan said the municipal pension fund was only 37.2 percent funded, while the laborers’ fund was 55.4 percent funded.

“Clearly, these are local pension systems that are in distress,” he said.

Public labor union officials testified against the bill, calling it harsh for low-earning city workers, as well as unconstitutional because it would diminish retirement benefits that are protected by the Illinois Constitution.

Recently enacted pension changes for Illinois teachers and state workers are being challenged in court on the grounds that the state constitution prohibits any impairment of retirement benefits for public sector workers.

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. In July, Moody’s slashed Chicago’s rating by three notches. (Reporting By Karen Pierog; Editing by Steve Orlofsky)

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