(Bloomberg) — Chicago’s pension burden rose again last year as new laws and accounting measures added to costs and first-term Mayor Brandon Johnson sought new revenue.
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The net pension liability at the city’s four pension funds rose about 5% to $37.2 billion since December. 31, up from $35.4 billion a year earlier, according to Chicago’s latest annual financial report.
The amount the city owes its four pensions that pay benefits to retired firefighters, police officers, municipal employees and laborers increased because of changes in pension assumptions and legislation, according to the report. The increase in costs was partially offset by investment income.
“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 2023 annual report.
The pension debt is a burden that Johnson and his more recent predecessors inherited after decades of underfunding. Shortly after taking office in May 2023, Johnson set up a pensions task force to find long-term solutions, but has so far made no formal proposals.
“The city is entering our annual forecasting and budgeting process, at which time we review pension fund actuarial reports to determine their impact on the city’s financial resources,” Jill Jaworski, Chicago’s chief financial officer, said in a statement. email on Monday. .
Johnson and city council members recently began examining the city’s revenue sources to see if its mix needs to change to increase funding. Approximately 80% of the city’s property tax levy goes toward pension costs. Johnson’s predecessor, Lori Lightfoot, had implemented an automatic property tax increase tied to the rate of inflation to address rising costs, but Johnson stopped that as part of a campaign promise.
The chronic lack of adequate contributions helped fuel Chicago’s pension liabilities — the single largest weight on the city’s budget and credit ratings.
But increased contributions and advance payments by the Lightfoot and Johnson administrations have slowed the pace, said Justin Marlowe, a professor at the University of Chicago’s Harris School of Public Policy. The problem is that rising interest rates and inflation have eroded the benefits of those extra dollars, he said.
“Even when you’re disciplined to make contributions, there are these other headwinds,” Marlowe said. “This is probably the first year that we’re seeing all the macro trends hit the unfunded pension liability.”
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