Crain's Chicago Business reports:
In a major blow to Chicago's already weak finances, a Cook County judge today rejected on constitutional grounds a plan to restructure two of the city's underfunded pension plans.
Judge Rita Novak ruled that, though the measure includes higher city contributions, it also improperly would force workers to accept reduced benefits, including a lower cost-of-living allowance every year.
Unless it's overturned on appeal, the decision means the city will have to start over and taxpayers potentially will have to pick up the entire tab for the billions of extra dollars needed to return the laborers' and municipal workers' pension funds to adequate levels.
There's more:
The municipal workers' pension has just 42.1 percent of the assets it needs, with an unfunded liability of $7.13 billion, according to a July 20 financial report distributed to potential buyers of the city's most recent bond offering.
The much smaller laborers' pension has 65.9 percent of the assets it needs, with an unfunded liability of $719.0 million.
The municipal workers' fund is projected to run out of money in 2026, with the laborers' becoming insolvent three years later.
The consequences of insolvency are uncertain, but if the city is required to pay pensions as they become due—so-called pay-as-you-go funding—the amounts would be staggering. The city's annual contribution would soar to $1.11 billion in 2026, when the municipal workers' pension fund is expected to run out of money. Three years later, when the laborers' fund is expected to run dry, the pay-as-you-go payment would be $99.6 million.
What could be worse?
The city had argued that unlike changes in state pension plans, which recently were tossed by the Illinois Supreme Court, its changes were more defensible, since Chicago's pension obligations accrued to the pension funds themselves and not the city. But Judge Novak dismissed that argument with a legal shrug.
“Contrary to the city's argument, it is not the pension code that creates the contractual relationship,” she wrote. “The contractual relationship that is mandated derives from the constitution, and so does the 'enforceable obligation' to pay the benefits.”
In other words: Pay up, even if the city offers workers other things in exchange for pension cuts. “Pension benefits cannot be 'netted' against funding schemes. . . .To do so would render the rights guaranteed by the pension protection clause (of the constitution) illusory.”
Is Chicago the new Greece? Will there be another recession between now and 2026 diminishing some of the pension fund assets? We think you know the answer. Even Common Core math can't help Chicago's situation.
