Chicago Mayor Rahm Emanuel has revised his pension plan, dropping a proposal for raising property taxes, in the wake of criticism from Gov. Pat Quinn and the state lawmakers who must approve it.
Last week, Emanuel unveiled a plan to hike property taxes by $250 million over five years. Now, it would be up to the city to decide how to raise revenue for pensions.
Under the plan, workers' contributions of 8.5 percent of salary to pension plans would increase to 11 percent over five years. And retirees would not automatically get an annual 3 percent cost-of-living expense, which would instead be tied to inflation and skipped in certain years.
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The legislation would continue to mandate that Chicago pay what it contributes to the funds or the state would withhold money due the city. And pension funds would have the ability to sue the city over payments.
"Working with legislative leaders, bill sponsors, the governor, and our partners in labor, we have addressed their concerns and can now move forward to save the retirements of nearly 60,000 city workers and retirees in Chicago," Emanuel said in a statement.
His office has said that city's municipal and laborers retirement systems could be insolvent within nine to 17 years unless changes are made.
The municipal system is reportedly facing a shortfall of $8.4 billion, while the laborers system is short $1 billion.
Quinn, a Democrat who is seeking reelection, has repeatedly expresses his opposition to a property tax increase. At a news conference on Monday he said, "They've got to do a lot better with whatever plan they come up with than just heaping a higher and higher property tax burden on everyday people."
Also on Monday, Moody's Investors Service called the original version of Emanuel's plan a modestly positive credit step by reducing the liabilities in the two systems' funds, but not a permanent solution.
"We expect that the [liability] would then escalate for a number of years before declining. Accrued liabilities would exceed plan assets for years to come, and if annual investment returns fall short of the assumed 7.5 percent, the risk of plan insolvency may well reappear," Moody's said in a report.
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