On Friday, Cook County Judge Rita Novak shot down a 2014 law aimed at reducing multi-billion-dollar deficits in two of Chicago's pension funds, ruling that the law is unconstitutional.
The move is widely considered a blow to Chicago Mayor Rahm Emanuel as he struggles to rescue his city’s credit rating and balance its finances.
“Chicago’s pension system is in increasingly precarious shape, and without changes, it is forecast to exhaust its assets in 10 to 13 years. The system is so large that its financial condition can affect the finances of the whole city. In May, Moody’s Investors Service lowered the city’s credit rating to junk status, saying that rising pension costs were ‘placing significant strain on the city’s financial operations,’ ” The New York Times reported Friday.
In 2014 the city of Chicago negotiated labor agreements to reinforce pension plans for laborers and general municipal workers. The agreements required a reduction of the cost-of-living increases that pensioners receive each year, and an increase of the mandatory contributions to pension funds that workers are obligated to give. The change would have affected around 61,000 city employees and retirees. Of the 31 unions whose members would be impacted by the changes, three sued.
Ultimately, Judge Novak agreed with the three unions that the ruling to change pensions was prohibited by a provision in the Illinois State Constitution that says public workers’ pensions cannot be “diminished or impaired.” Regardless, city officials insist that the pension funds will lose solvency if not overhauled, and warned that residents could see a huge tax increase as a result of the ruling.
While Chicago has the worst-funded pension system of any major US city, the pension problem is not an anomaly in many US metropolises.
“The depth of Chicago’s current crisis is unusual, but the basic challenge is not. For years, local politicians in the US have been able to grant public-sector workers and labor unions retirement benefits that are generous by private-sector standards,” The Christian Science Monitor reported in April.
“Although there’s debate about whether public-sector workers can be generally called “overpaid,” the problem is this: The benefits haven’t been paid for in a sustainable way.”
Officials in the mayor’s office said that the city will appeal the ruling.
This report includes material from the Associated Press.