CHICAGO, July 30 (Reuters) - The Chicago City Council on Wednesday agreed to increase a monthly emergency service surcharge on phone lines that would free up $50 million in operating funds, allowing them to make higher payments to two city pension funds.
Effective Sept. 1, the phone surcharge will increase by $1.40 to $3.90 per line to generate an additional $12 million this year and $40 million next year, according to a statement from Mayor Rahm Emanuel’s office.
The additional revenue will enable Chicago to end its operating fund’s subsidy of the city’s emergency call center. In turn, that will allow Chicago to use the freed up funds to avoid a hike in property taxes, at least initially, which are largely used to fund the city’s four retirement systems.
“By working with many aldermen to identify an alternative revenue source, the city is living up to its obligations to fund the retirement of more than 61,000 workers and retirees in the municipal and laborers fund,” Emanuel said in the statement.
Earlier this year, the Illinois Legislature authorized a higher surcharge, as well as reforms requiring the city and its workers to increase pension contributions to the municipal and the laborers’ retirement funds. The law, which also ties cost-of-living adjustments for pensions to inflation while skipping the adjustments in certain years, lets Chicago decide how to raise money for the increased pension payments.
Emanuel’s office has warned that the municipal and laborers’ 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. The city also has police and fire retirement systems that were not affected by the new law.
Severe pension funding problems has led Moody’s Investors Service to cut Chicago’s credit rating four notches to Baa1 since July 2013.
Reporting By Karen Pierog; Editing by Diane Craft