Chicago has more pension debt than 44 states

Despite claims of Chicago’s improving financial condition, the $48 billion in pension debt for the city’s core retirement systems continues to loom over its fiscal future.

Chicago’s core public pensions remain among the worst-funded local retirement systems in the nation. According to a recent report from the Equable Institute, the four city-sponsored pension systems – municipal, laborers, police and fire – along with the Chicago Teachers’ Pension Fund hold more debt than 44 states.

According to data provided by the institute, Chicago’s core systems have a combined pension debt of nearly $48 billion. That is currently more pension debt than 44 states, underscoring how difficult the city’s pension situation is and how it continues to cloud the city’s fiscal future despite a supposed “turnaround” touted by city leaders.

The $48 billion figure for the city’s core pension systems represents the retirement funds that are most directly paid for by Chicagoans, primarily through property taxes. More than 80% of Chicago’s property tax levy – including all of the automatic annual increase – goes to pensions, and the Chicago Teachers’ Pension Fund has its own property tax levy specifically dedicated to pensions. The city’s property tax levy doubled in a decade and shows no signs of reversing. With more debt than 44 states, only a constitutional amendment to allow for pension reform can help the city turn around its finances.

Other Chicago-area pension systems have significant shortfalls of their own. The Metropolitan Water Reclamation District has nearly $1.2 billion in pension debt. The Chicago Transit Authority’s retirement system has an additional $1.8 billion in debt. The Cook County Employees’ Annuity Benefit system holds an additional $11.8 billion in debt of its own. Together those systems have about $14.8 billion in debt, placing further strain on taxpayers in Chicago and nearby areas.

The Chicago Park District’s retirement system was not included in the Equable Institute’s data. That system has roughly $824 million in pension debt, according to its latest annual comprehensive financial report. Adding all those figures together would be over $15.6 billion and more pension debt than half of U.S. states. Those numbers reflect how deep the pension crisis remains in Chicago despite leaders hailing the city’s financial success.

Making matters worse for the city’s pension funds, each of the five major systems are also among the worst funded in the nation. According to Equable Institute’s latest data, only one local pension system in the nation has a worse funded ratio than all of Chicago’s core systems.

Those figures come from fiscal year 2021, the most recent year for which comparable data is available. During fiscal year 2022, Chicago’s pension funding ratios have declined even farther because of poor market performance, according to the most recent figures from the Equable Institute.

Poor funded ratios show the financial distress the city continues to face. Experts warn funded ratios below 60% are very unhealthy and can be considered “deeply troubled.” Funded ratios below 40% are considered to be past the point of no return and on the path to insolvency or major cuts. By those standards, all of Chicago’s core pension systems can be considered deeply troubled, as none of them have a funded ratio over 47.6%. Three of the systems – the pension funds for municipal employees, police and firefighters – are all below the threshold for being beyond the point of no return.

Fixing Illinois’ broken pension system and protecting retirees and taxpayers will require constitutional pension reform. Former Mayor Rahm Emmanuel and soon-to-be former Mayor Lori Lightfoot both called on state lawmakers to pursue constitutional pension reform at the end of their terms. Chicago’s next mayor should leverage the position to lobby state lawmakers to pursue these reforms.