(Bloomberg) — Chicago’s pension burden rose again last year as new laws and accounting measures increased costs and left first-term Mayor Brandon Johnson searching for new revenue sources.
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As of Dec. 31, net pension liabilities across the city’s four retirement funds rose about 5% to $37.2 billion from $35.4 billion a year earlier, according to the city’s most recent annual financial report.
The city’s obligations for four pensions that pay benefits to retired firefighters, police officers, city clerks and workers increased due to changes in pension assumptions and laws, according to the report. The increased expenses were partially offset by investment gains.
“While the City still faces some long-term structural challenges, we are charting a better path forward for the City’s finances,” Johnson said in a June 28 letter attached to the city’s fiscal 2023 annual report.
The pension debt is a burden inherited by Johnson and his immediate predecessors after decades of underfunding. Johnson set up a pensions working group to find a long-term solution shortly after taking office in May 2023, but so far no formal proposals have been made.
“The City is beginning its annual forecasting and budgeting process, during which we will review the pension fund actuarial reports and determine the impact on City coffers,” Jill Jaworski, Chicago’s chief financial officer, said in an email Monday.
Johnson and City Council members recently began a review of the city’s revenue streams to see whether they need to change the mix to raise more money. About 80 percent of the city’s property taxes go toward pension costs. Johnson’s predecessor, Lori Lightfoot, had instituted automatic inflation-linked property tax increases to address rising costs, but Johnson ended them as part of a campaign pledge.
A chronic lack of adequate contributions has contributed to Chicago’s ballooning pension debt, becoming the largest burden on the city’s budget and credit rating.
But the pace has slowed due to increased contributions and advance payments from the Lightfoot and Johnson administrations, said Justin Marlow, a professor at the University of Chicago Harris School of Public Policy. The problem, he said, is that rising interest rates and inflation are eroding the benefits of those extra funds.
“Even if you’re paying into your pensions properly, there are headwinds,” Marlow says. “This is probably the first year that all of the macro trends have hit unfunded pension liabilities.”
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