Insolvency, Chicago-style

Chicago's firefighter pension fund needed emergency lending to cut checks to retirees.

Internal emails revealed last week that Chicago Mayor Brandon Johnson’s team knew a bill pushed by one of their top allies in Springfield was a disaster for city finances, yet the mayor did alarmingly little to stop it.

In this week’s edition of The Last Ward we’re taking a deeper look at that story, a taste of insolvency for the Chicago firefighters’ pension fund, the docket for City Council’s meeting this Thursday, and more.

Let’s get into it.

Mayor MIA

State lawmakers passed—and Gov. JB Pritzker signed—one of the most irresponsible bills in modern Illinois history this year: a suite of pension sweeteners for Chicago police and fire. The sweeteners added $11 billion in new benefits to the city’s police and fire pension systems, which were already the worst-funded in the nation, with no new revenue to pay for them.

In the waning days of session, sources said several leaders attempted to contact Johnson to request that he tell the governor’s team to step in and kill the bill. But the mayor was missing in action. A newly unearthed memo published this week by Paris Schutz at Fox32 confirmed Johnson’s negligence.

Specifically, Chicago CFO Jill Jaworski wrote to the governor’s team that the bill would make Chicago’s police and fire pension funds “technically insolvent.”

But Jaworski sent that memo months after the bill had already passed the General Assembly unanimously, writing to Deputy Gov. Andy Manar on July 28, “my apologies for not getting this to you earlier.”

Schutz’s story also included the first major interview with the bill’s sponsor, state Sen. Robert Martwick, about its passage. That portion of the story is transcribed below, and rebutted in the footnotes.

The bill was sponsored by Northwest Side Democratic State Senator Robert Martwick, who says the bill was needed to bring tier 2 Chicago police and fire employees, or those hired after 2011, in line with their colleagues across the state.¹

"What we did was provide the same benefit parity, the same Tier 2 fix, for Chicago police and fire that was granted six years prior to every other police and firefighter across the state of Illinois," Martwick said.

He also says the bill was necessary to satisfy an IRS rule called "Safe Harbor," where government employees must receive benefits equal to or greater than social security …²

Martwick says he understands the financial ramifications.

"The problems that have been created over decades of underfunding from administrations past are there. Passing the law doesn't make them any more insolvent, it just makes the insolvency more apparent and more readily accessible.”³

A taste of insolvency

Bloomberg broke news last week that the city was forced to provide emergency lending for Chicago’s firefighter pension fund in order to avoid asset sales. Between a delay in Cook County property tax bills⁴ and alarmingly low funding levels, the fund literally did not have the necessary cash on hand to pay current retirees. This is what insolvency looks like.⁵ And this is exactly why Jaworski and Johnson should have been screaming from the rooftops to oppose the pension sweetener bill.

It also underscores the fact that Chicago is the only major city in the country without the power and process to seek Chapter 9 bankruptcy protection. Without that power, there is no incentive for government unions to come to the table and every incentive to continue piling debt onto young Chicagoans, until the city reaches a breaking point.

City Council meets this week—here’s what you can do

Your voice can make a significant difference on two issues before the City Council at their Thursday meeting this week.

1. The grocery tax. The mayor has been pushing City Council to approve a 1% grocery tax, estimated to take $80 million from shoppers next year. You can tell your alderman to reject Johnson’s grocery tax hike here.⁶

2. More affordable housing options. An ordinance introduced by 44th Ward Ald. Bennett Lawson would allow for property owners in more than 60% of the city to build “granny flat”-style housing, also known as Accessory Dwelling Units, or ADUs. Meanwhile, a competing ordinance would strictly limit new ADU construction. Contact your alderman and tell them to support Lawson’s ordinance here.

It’s time to talk about election timing

Upon launching the Chicago Policy Center earlier this year, we published a report on how the city’s February municipal election timing discourages democracy. Here were the four most important findings:

1. Huge drop-off in turnout: From 2014-2024, Chicago’s average municipal election turnout was 36%. General election turnout averaged 61%. That’s a 40% decline.

2. That drop-off is consistent across racial groups: Here’s what average turnout looked like by precinct-level racial majority from 2014-2024:

   1. White: 71% general vs. 42% municipal (41% decline)

   2. Black: 55% general vs. 32% municipal (42% decline)

   3. Hispanic: 49% general vs. 30% municipal (40% decline)

   4. No racial majority: 61% general vs. 36% municipal (40% decline)

3. Incredibly low turnout in certain wards: Several wards have been electing City Council members with less than 25% voter turnout.

4. No other reform can boost turnout like changing election timing: Cities that moved to on-cycle elections have doubled—in some cases quadrupled—voter participation in municipal elections.

Encouragingly, state Rep. Maurice West, D-Rockford, is convening a subject matter hearing on this topic in the House Ethics & Elections Committee on Wednesday, Sept. 24.

Kudos to Rep. West for leading on this issue. Because it’s not just a Chicago problem. Municipal elections across the state are subject to the same freakish, February timing. And municipal election turnout across the state is abysmal.

That deserves a conversation.

1. Chicago can’t afford to give away new pension benefits, regardless of what other cities provide. And a holistic look shows Chicago police and fire already came out far ahead of their downstate counterparts before these new sweeteners. Specifically, they earn higher salaries and contribute a smaller share of those salaries toward their pensions. Jaworski noted in her memo: “Proponents … cited the legislation as achieving parity with downstate and suburban pension funds. While the legislation does align the salary cap, it does not align all of the provisions. Most notably, the legislation does not address employee contributions. Chicago police pay 9% of payroll into the PABF while downstate and suburban police officers pay fully 10% more, 9.9% of payroll, toward their pensions. Likewise, Chicago firefighters pay 9.125% into FABF while their downstate and suburban brethren pay 9.455% of payroll toward their pensions.”

2. Not a single public official has ever publicly presented evidence that these pension plans violate Safe Harbor. Not one. If this is an issue that requires billions of dollars in new spending, it’s essential that lawmakers show their work and debate it. Further, the IRS has never enforced a violation of Safe Harbor. And even if compliance is needed, these sweeteners go far beyond what’s necessary to fix it. Finally, Jaworski wrote in her memo that this bill “does not represent a structural fix to Tier 2 Safe Harbor compliance.”

3. If these funds were simply carrying $11 billion in “shadow” liabilities all along, Martwick should immediately disclose the cost of increasing all Tier 2 pension benefits across the state to the level of Chicago police and fire. This would indeed make the level of pension insolvency across Illinois more apparent to retirees, taxpayers, and ratings agencies.

4. More to come on this story, which will play a major part in the race for Cook County Board President.

5. As the great Mary Pat Campbell pointed out, “insolvency” can have vastly different meanings in the private and public sector. The Chicago fire pension fund has $1.5 billion in assets, after all. It’s not flat broke. But not having cash on hand to pay current beneficiaries because of its low funding level and an administrative delay underscores the severe fragility of the system.

6. You can learn more about the grocery tax proposal here.