Outgoing mayor Lori Lightfoot nearly doubled Chicago’s annual contributions to the city’s four cash-starved pension funds and laid the groundwork for a new casino to pad police and fire pensions.

It still won’t be enough to save the funds from insolvency.

The funded ratios for the Municipal Employees’ Annuity & Benefit Fund of Chicago (MEABF), Laborers’ & Retirement Board Employees’ Annuity & Benefit Fund (LABF), Policeman’s Annuity & Benefit Fund, and Fireman’s Annuity & Benefit Fund, have barely budged since 2019, in most cases sputtering with just over 20% of the money promised to the city’s retirees.

“There’s been maybe some marginal improvement,” said Amanda Kass, an assistant professor at the DePaul University School of Public Service who researches Chicago’s pensions. “But it’s really hard to tease out, to the extent that there’s been improvement, how much of it is due to structural changes.”

Following Lightfoot’s defeat in the Feb. 28 election, a new mayor is about to accept the albatross of Chicago’s pension crisis. Both former Chicago Public Schools CEO Paul Vallas and Cook County Comm. Brandon Johnson have hinted at how they would try to get the funds on a path to solvency.

But it will likely take years of scrutiny and tough decisions if they want to leave the city’s finances in better shape than they find them — especially if the city hits a recession, and especially if both candidates want to keep their promise not to raise property taxes.

“Absent having a boom of economic growth, the city’s tools are limited,” she said. “You can cut existing spending, raise taxes or both.”

Origin of the pension crisis

The most straightforward thermometer for Chicago’s fiscal health comes from bond rating agencies, who rate the city’s creditworthiness among the worst of any big city in the nation. Fitch and Moody’s both nudged up their ratings on the city’s General Obligation debt during Lightfoot’s tenure, but all four ratings remain far below where they stood even in 2013.

The city’s pension crisis dates back at least to the 1990s, when Mayor Richard M. Daley’s administration took advantage of lax state requirements to make flat annual contributions to the pension funds even as their obligations grew.

Daley’s administration kept shorting the funds but mostly kept the problem under wraps until the 2008 financial crisis “ripped the curtain away” and the simmering math problem boiled over into a full-blown fiscal crisis, Kass said.

After the credit rating agencies took notice of the Chicago’s pension shortfall and pummeled its credit ratings in the early 2010s, making it more expensive for the city to borrow, Mayor Rahm Emanuel lobbied for a 2016 state law designed to catch the city up on its debts. The law charted a five-year “ramp” period during which the city would jack up its pension contributions each year until 2022, when its annual payments would be on course to get the pensions to a 90% funding ratio by 2055.

But by pegging the ramp with fixed dollar amounts that don’t account for the pension funds’ changing needs, and by setting a goal of 90% funding instead of the recommended 100%, the state law didn’t set a high enough target, Kass said. She noted that pension funds are so depleted that they are sometimes forced to sell assets just to meet their obligations, meaning the city must replenish them with increasing amounts of money just to keep them from slipping into a death spiral.

The coming Chicago casino, which Lightfoot has touted as a lifeline for the city’s police and fire pensions, is projected to provide about 9% of the revenue needed to shore up the funds — hardly a silver bullet.

“There’s not an easy solution,” Kass said. “If you wanted to improve the finances of the pension systems, you’d have to put in a lot more money than is required by state law. Like, double or triple the amount of money.”

In an interview Tuesday, Chicago Chief Financial Officer Jennie Huang Bennett pointed to the Lightfoot Administration’s decision last year to pay an extra $242 million into the pension funds beyond statutory requirements. Moody’s credited the move in its decision to upgrade the city’s credit rating late last year.

“We’ve made a significant increase in pension contributions in the past couple of years, and that’s the crux of what rating agencies saw when they made their upgrades,” Bennett said. “The rating agencies expect us to keep making those advance payments to keep the city’s net pension liability stable.”

A spokesperson for Lightfoot added in a written statement that the mayor “has accomplished the financial reforms she set out to do when she came into office, four years ago, and leaves the City of Chicago on sound financial footing.”

Vallas’ plan

Vallas dedicates about a 300-word section of his website to the city’s pension funds, which he says “require immediate action to keep them from going underwater.”

His five-point plan to improve the health of the city’s pension funds rests in large part by securing more help from the state government, such as lobbying to ensure that the city reaps a share of any future hike in the state income tax. He also wants the state to boost its annual contributions to the Chicago Teachers’ Retirement System, which he says would free up the city to pay more into its own funds.

Lightfoot has also repeatedly called on Springfield to help rescue the city’s pensions, but her pleas have avoided specifics. An attempt by Emanuel to shave pension benefits was struck down by the Illinois Supreme Court in 2015, leaving state leaders with few tools except to shovel more money into the systems or to cut future retirement benefits for incoming employees.

Vallas’ platform calls to “depoliticize” the pension funds by putting them under the direction of “independent professional investment managers.” The pension funds are currently overseen by boards appointed by the mayor — a fact that drew attention last month when Illinois Comptroller Susana Mendoza blamed Lightfoot for a decision by the Policeman’s Annuity & Benefit Fund Board to deny benefits to Mendoza’s brother, who is a Chicago Police Officer.

Finally, Vallas proposes using money from tax-increment financing districts to back pension obligation bonds, which means taking on new debt and using the loan to invest on the pension funds’ behalf. Some financial watchdogs warn against pension obligation bonds, calling them unacceptably risky. Gov. Rod Blagojevich issued pension obligation bonds at the state level in 2003, and their results were mixed at best.

“The thinking is that the interest on the bonds will end up being less than the interest you pay on the pension systems,” Kass said. “That’s where there’s a lot of risk.”

Vallas’ opponents have noted that he presided over decisions in the late 1990s and early 2000s to skip payments to the Chicago Teachers’ Retirement System. The skimpy payments were enabled by a new state law and are now widely blamed for the teachers’ fund’s own financial troubles.

Johnson’s plan

Unlike Vallas, Johnson has no plank in his platform dedicated solely to pensions.

However, the “City Budget & Revenue” section of Johnson’s site acknowledges that “general and pension debt service will require higher amounts each year than the year before.” The platform estimates that “$250 million is required above currently budgeted amounts simply to keep this debt from growing.”

Johnson’s plan rests on drumming up more than $800 million in new revenue through a mix of new taxes on corporate employees, airlines, hotels and high-end real estate sales. Combined with more than $500 million in cuts to “inefficient spending,” the county commissioner estimates he can put aside an additional $1 billion each year “simply to pay for, and to overcome, past mistakes” including the underfunding of the pension systems.

While piling significantly more money into the pension funds would certainly put them in better shape, Kass warned that taxpayers should be skeptical of lump sum dollar commitments when “the cost of benefits and liabilities are constantly in flux.”

“When I see a statement saying an additional $250 million is needed to keep the debt from growing, that’s based on current estimates,” Kass said. “You could put in $250 million more than is budgeted, and the debt could still grow.”

Johnson’s opponents — including Lightfoot, before the election — have predicted that his tax plan would drive businesses and wealthy residents out of the city, worsening Chicago’s financial woes.

In a statement Tuesday, a spokesman for Johnson pointed to the commissioner’s record of supporting balanced Cook County budgets and said the candidate “will enact a plan to fully eliminate the city’s structural deficit without raising property taxes.”