Finance

After State Reform, Chicago Looks to Fix Its Pension Problem

December 5, 2013

First came the State of Illinois, now comes the City of Chicago.

The hard-fought passage here Tuesday of a landmark bill trimming retirement benefits for state workers, aimed at fixing the vastly underfunded pension system, has become instantly relevant to the nation’s third-largest city, which has its own pension systems in various stages of financial collapse.

And if anything, the reckoning in Chicago is even nearer and more difficult than the one the state had faced, putting its Democratic mayor, Rahm Emanuel, in a difficult position under a tight deadline.

Under state law, the city must increase its contributions to its workers’ pension funds by $590 million in 2015, to a total annual contribution of $1.4 billion for current and future retirees. If no pension deal can be reached by November of next year, when the city will draft its next budget, the city will either have to raise taxes or cut services or some combination of both.

But city officials are hoping there is now momentum on their side to force a compromise solution. They come armed not only with Tuesday’s state vote but also with a federal judge’s ruling, also on Tuesday, to formally send Detroit into bankruptcy. Chicago is not facing bankruptcy, but the Detroit case produced a development being watched closely by cities and unions across the country: It explicitly permitted changes to public pension funds to help the city shed its debts and reorganize.

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