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Chicago pension fix gets quick committee approval

Published: Wednesday, April 2, 2014 7:48 p.m. CDT

SPRINGFIELD – Less than 48 hours after it was proposed, an Illinois House committee gave quick approval Wednesday to Mayor Rahm Emanuel's plan to fix two underfunded Chicago pension systems in part by levying a massive property tax increase.

The Personnel and Pensions Committee, controlled by Democrats like Emanuel, voted 6-4 to send the proposal that would include hiking property taxes by $750 million over five years to the House floor. The measure's sponsor, Speaker Michael Madigan, a Chicago Democrat, said he planned to call it for a vote later Wednesday. But the House later adjourned for the day without voting.

City officials had continued to insist the five-year tax increase was $250 million until a Republican member of the House committee pointed out that compounding each year tripled the total.

Democrat Emanuel announced Monday night that he had reached agreement with 31 labor unions to reform two pension funds – for municipal workers and laborers – and cut a $19.5 billion deficit in half in the next 40 years.

"The way the numbers look today, the way the system works today, somewhere in the order of 10 years, approximately, it is our belief that these funds will be out of money completely and there will be no money to give anything from these funds to the people who are covered," Chicago's deputy mayor, Steve Koch, testified.

The plan also would require higher contributions from employees to their retirement accounts and reduced benefits for retirees, along with a requirement that the city pay what it's obligated to pay. Those are the parts that need legislative approval; the tax increase is up to the city.

The proposal does not deal with two other city pension systems – for police and fire employees – which have a $10 billion shortfall and to which the city is required to make an extraordinary, $600 million payment next year. It also does not deal with Chicago teachers, who have a separate pension plan. Cities across the state are struggling with police and fire pension deficits.

While Emanuel claims widespread union support for the municipal employees and laborers deal, at least one coalition of unions has vowed to file a lawsuit challenging the initiative's constitutionality, as other groups have done with the state pension plan signed into law last fall. The Illinois constitution says that pension benefits cannot be diminished.

Representatives from three unions who represent some of the 57,000 employees and retirees affected by the Chicago plan testified against it.

"These workers are among the lowest-paid in the city," said John Cameron, political director for the American Federation of State, County and Municipal Employees, calling the idea unconstitutional and doomed in the courts. "This bill will be a sweeping diminishment in the value of their retirement benefits, reducing their real purchasing power by as much as 30 percent over the next 20 years. Further, it requires while their benefits are being cut, that they pay more for less of a benefit."

Madigan predicted success in the House. When asked what the rush to enact the plan was – the Legislature adjourns at the end of May – Madigan responded, "Why would you want to slow it down?" He said the news media are covering the issue in an open process.

Rep. Elaine Nekritz, a Northbrook Democrat and chairwoman of the pensions committee, said she did not know the extent of the bill's support. She said some Democrats worry that approving the deal would suggest that state lawmakers are increasing taxes in Chicago when that is up to the Chicago City Council. Emanuel's proposal also would reduce annual increases in pensions to retirees.

"There's nervousness because it looks like we're raising taxes again and we're back to impacting retirees' checks," Nekritz said.

Rep. David McSweeney, a Republican from Barrington Hills, questioned Koch until he acknowledged that, in the aggregate, Chicago taxpayers will owe $750 million more at the end of five years.

"This is outrageous. This is going to kill jobs," McSweeney said after the hearing. "They should make the changes to benefits and they should have negotiated it. It's clear not all the parties are at the table."

The Senate conducted its own fact-finding hearing on the matter Wednesday afternoon in case the issue gets quick approval on the House floor.

"What we see happening here in the city and the state is careening from one crisis to the next," said Senate Republican Leader Christine Radogno of Lemont, who wants a comprehensive solution to all Chicago systems, not just two. "What we want to see is a long-term plan."

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The bill is SB1922.

Online: http://www.ilga.gov

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Associated Press writer Kerry Lester contributed.

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Contact John O'Connor at https://twitter.com/apoconnor

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