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April 8, 2014
By: Monica Davey

CHICAGO — The Illinois legislature on Tuesday approved a plan to start easing Chicago’s crippling pension problems by requiring some city workers to pay more for their retirement benefits and by granting smaller increases in those benefits.

The move is part of an effort put forth by Mayor Rahm Emanuel to shore up the pension system and presumably would include a proposed property tax increase for Chicago residents, a tax subject to City Council approval.

The experience of Detroit’s bankruptcy seemed to loom over the Illinois legislative negotiations.

Mr. Emanuel’s proposal would require more than half the city’s workers and retirees to contribute more toward their pensions over a period of years.

“They’re on that path right now, it seems to me,” State Representative David Harris, a Republican, said of the possibility that Chicago might someday find itself in circumstances similar to Detroit’s, which last year became the largest city to seek bankruptcy protection. But even with these changes to the pension system, Chicago, the third-largest American city by population, would be far from overcoming the troubles that threaten its annual budget and that have led to repeated cuts to its credit ratings.

Chicago still needs to figure out how it will meet a requirement next year to contribute nearly $600 million more to some of its workers’ pension funds. And while the revisions this week will affect two of the city’s pension funds, covering about 56,000 workers and retirees, they do not help solve the problems with several other pension funds, including those for retired firefighters, police officers or public schoolteachers.

“What’s the plan?” said State Senator Matt Murphy, a Republican, who described the pension changes before state legislators as “a piecemeal approach” that left a far larger problem ahead and no vision for how to fix it.

The current measure would put two of the city’s pension funds — one for tens of thousands of municipal workers, the other for a far smaller group of laborers — on a path to being 90 percent funded in 40 years, city officials said. “This is unpleasant,” said State Senator Don Harmon, a Democrat, who voted for the changes. “But we are saving the state. We are saving the city. And perhaps most importantly, I truly believe we are saving pensions for the folks to whom we’ve promised them, the folks who are relying upon them, the folks who are sitting home nervous that we are going to take them away.”

The pension liabilities are sizable here: One city analysis found at the end of 2012 that the system had assets to cover only about 36 percent of its liabilities. A study by the Pew Charitable Trusts last year found that Chicago had put aside the smallest portion of pension obligations among the nation’s five largest cities. Still, Chicago is hardly alone. In bankruptcy court, Detroit has cited pension liabilities among its $18 billion in debt. And the financial futures of a long list of seemingly more healthy cities are also threatened by significant pension liabilities.

The Emanuel administration had worked intensely to push the matter through the state legislature, which is controlled by Democrats. “For the sake of our city, we asked a lot of our residents, our employees and our retirees to accept change, and that’s never easy,” Mr. Emanuel said. “I believe that the certainty we are now providing will make the change worth it.”

The changes come at a politically complicated time — an election year for lawmakers and Gov. Pat Quinn and the year before Mr. Emanuel faces re-election — and in a state where Democratic leaders have long drawn support from labor unions. Mr. Quinn, a Democrat facing re-election, has yet to say whether he will sign the changes. He criticized an earlier version of Mr. Emanuel’s proposal because it would require a property tax increase for Chicagoans. A revised version removes references to a property tax increase, leaving it to Chicago officials, not state lawmakers, to decide how to raise more money for pensions. On Tuesday, the House voted 73 to 41, the Senate 31 to 23. The plan would require employees to contribute 11 percent of their salaries to pensions by 2019, compared with 8.5 percent now. Annual cost-of-living increases would no longer grow at a 3 percent rate, compounded each year, but would typically rise more slowly.

While unions have regularly objected to the prospect of pension cuts, aides to Mr. Emanuel say the changes here grew out of conversations with the unions themselves. At least one union has said publicly that it will remain neutral on the plan, but several others have criticized the overhaul as a violation of the Illinois Constitution, which includes a protection of pensions, and called on Mr. Quinn for a veto.

Copyright 2014 New York Times Company 

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