Chicago taxpayer contributions to pensions could spike due to recession

A new financial report predicts residents in the nation’s largest cities will pay more for pensions next year as inflation and recessionary fears “erase” 2021 gains. Chicago topped the big cities for pension debt.

Chicagoans will likely pay more for pensions in 2022 as historically poor financial returns “erase” the positive gains touted by city leaders during 2021, a new S&P Global Ratings report finds.

“S&P Global Ratings anticipates that market declines in 2022 and the threat of a recession will likely lead to the need for increased future contributions, in most cases,” analyst Stephen Doyle wrote.

Doyle found “broad-based inflation increases during 2022 led to weakening economic conditions and lower market returns,” for the 20 largest cities in the U.S.

The S&P analyst predicts the gains reported by these cities in 2021, despite receiving billions in federal pandemic aid, will be “erased in 2022.”

The report was released just days after the S&P 500 closed at its lowest level in 2022 on Sept. 26, down more than 23% since January. Financial experts predict the index will decline further before rebounding.

Doyle cautioned cities’ leaders against reducing pension contributions next year to accommodate shrinking budgets, finding at least one-third of all pension plans will need to increase contributions to maintain their current funding ratios.

Chicago topped the cities for current pension costs and highest net liabilities – by far. The analyst proposed pension reform as a means of controlling rising costs as the economy braces for a possible recession.

The city of Chicago’s eight public retirement systems are owed $46.9 billion, more pension debt than any other U.S. city surveyed and more debt than 45 states.

Paying off that debt today would cost every Chicago household $43,995. But it would not stop the city’s pension costs, or the property taxes levied to pay for them, from rising again in the future.

Chicago cannot pursue pension reform until Illinois lawmakers introduce a constitutional amendment to curb future growth in government pension increases. Pensions eat a growing share of property taxes statewide, yet local government pensions are still owed $75 billion.

But Chicagoans do have one way to control future property tax hikes, found at the top of the Nov. 8 ballot. It is a proposal called Amendment 1.

Passing Amendment 1 would lead to higher property taxes in Illinois, with the increase conservatively estimated at $2,149 for the typical household.

This estimate is based on the long-run average growth rate of Illinois property tax bills. But Amendment 1 would likely accelerate that growth, expanding the bargaining power of government union bosses to negotiate over a near endless array of subjects, ultimately forcing residents to pay the bill for costly contract concessions that carry more weight than state law.

And it’s generous contract concessions made over decades that created the pension crises in both Chicago and Illinois.