By Holly LaFon
The Civic Federation urged the city of Chicago to correct its pension deficit and end its use of bond extensions in a report released Monday on the Mayor Rahm Emanuel’s proposed fiscal 2015 budget.
The report highlighted the city’s two nearly broke pension funds and $627.4 million increase in required pension obligations next year. It also called out the city’s use of bond extensions for the past three years to borrow money to pay for operating costs.
The non-partisan government watchdog group recommended the city “continue to work with the state legislature to enact comprehensive pension reform specific for the city police and fire pension funds, including not pushing off contributions and pursuing statewide public safety pension fund consolidation.”
However, the group said that overall it approves of the city’s proposed budget. The City Council is due to vote on the Mayor’s budget on Nov. 19.
The Civic Federation said it had no qualms with the targeted tax and fee increases, vacancy eliminations and other operational adjustments included in the $7.3 billion budget to close Chicago’s $297.3 million deficit.
Emanuel’s proposed budget includes tax increases on parking and personal property, and raise software, vehicle and leasing fees.
Bill Bergman, director of research at Truth in Accounting, agreed with the substance of the organization’s report.
“We do not take a stand on the actual mix of spending, taxing, and other financial means the city takes to address its growing financial crisis, but we do share the Civic Federation’s concern about the gravity and direction of that crisis,” he said.
Though the city implemented pension reform in 2014, it impacted only two of its four funds. Chicago’s police and fire pension funds remain only about one-third funded. A sharp increase in required payments to the funds takes effect in fiscal 2015.
The Civic Federation warned in its report that the required pension payments could force the city to cut services or increase property taxes, despite Mayor Emanuel’s pledge that he would not do so.
The report also criticized the city’s debt management. To meet its debt payments, the city for the past three years has extended maturing bonds by an additional 30 years. The practice could harm the city’s ability to issue future debt as well as increase its interest rate costs, the report warned.
Moody’s downgraded Chicago’s credit rating in May from A3 to Baa1, a medium grade that is three levels above junk-bond status, citing the city’s pension debt.
Photo: Chicago Mayor Rahm Emanuel speaks at a CTA red-line stop on Aug. 7. Holly LaFon/Medill