The Emanuel Administration is borrowing $220 million to prove the city has the money to pay the rest of its statutorily required FY2015 payment to Police and Fire pension funds, due by the end of this year.
The move, detailed in a letter Chief Financial Officer Carole Brown sent to aldermen this week, is in response to a lack of action in Springfield on the Mayor’s pension fund reform bill, SB 777, which would have decreased the annual payments the city is required to make to its police and fire pension funds.
Under current state law, the city’s Police and Fire pension plans must achieve a 90% funded ratio by the end of 2040. The Police Fund is only 26% funded with a $11.73 billion unfunded pension liability, and the Firemen’s Fund is only 23% funded with a $4.513 billion unfunded liability. The Mayor’s proposed legislation in Springfield would reduce payments through 2020 and push the 90% funding requirement to 2055.
But when the City Council approved the 2016 budget last year, it based its payment schedule on that reform bill, not current state law. The city only budgeted $619M for the FY2015 Police and Fire pension payment, but, under current law, is required to pay $839M, a difference of $220M.
Because SB 777 has yet to be signed by the Governor, state law requires the city deposit the difference with the city Treasurer to demonstrate it can make the full payment, Brown explained to aldermen.“To meet this requirement, the City is utilizing a short-term funding bridge. This short-term funding bridge will be terminated by the City when Governor Rauner signs SB 777.”
That “short-term funding bridge,” is a short-term line of credit, similar to the money the city uses for cashflow purposes to supplement the cost of city services until property tax receipts are dispersed, the city’s budget office told Aldertrack.
The money will be placed into an “agency fund” controlled by Treasurer Kurt Summers. He, in turn, will invest the funds, and use the earned income to offset the cost of borrowing the money, the city’s budget office said.
If SB 777 passes, the city would return the money to the bank and pay a nominal interest rate. But if SB 777 fails, the city would have to give that money to the pension funds and pay back the entire cost of borrowing the money.
City officials remain confident that SB 777 will pass. For them it’s a matter of when, not if. But Gov. Bruce Rauner has said that he’d only agree to it if it’s part of a larger structural reform package that includes aspects of his Turnaround Agenda.