Chairman Austin, Chairman Burke, and Members of the City Council:
I appreciate this opportunity to speak with you once again, and our entire city, about a challenge that affects Chicago’s future.
Today, Chicago’s economy is strong.
Unemployment has reached an all-time low. Last year, we achieved the largest drop in unemployment of the ten largest cities in the country. There are more jobs per capita in our city today than there have been in five decades.
We have become the best-educated big city in the country, and our lead is widening.
We have nurtured and promoted a thriving and expanding tech sector from the ground up.
As an example, Salesforce just spelled out their plans to build a new office tower for thousands of employees in Chicago. A group of homegrown tech companies just announced they are creating more than 2,000 new jobs in the city. Google just confirmed a major Chicago expansion.
We have made Chicago a global hub for the world’s most cutting-edge research from quantum computing, to software engineering, to medical research, to data science.
Our economic progress, across all sectors of our economy, is a testimony to the hard work we have done to invest in our fundamental economic strengths and our engines of growth.
Our transformation of our City Colleges has helped ensure everyone, from every part of Chicago, has the chance to participate in that growth. I am glad that college graduates from across the country want to come find jobs and start their careers in Chicago, but I believe students from our City Colleges should have a fair shot at those jobs too.
Our modernizations of O’Hare, Midway, the CTA and Union Station have set the stage for long-term growth for the city as a whole and neighborhoods across our city.
Our successful effort to bring the Obama Presidential Center to the South Side will bring more energy, vitality, and billions of dollars of new economic development to Chicago.
Our political will to get the City’s operating budget in order has strengthened Chicago’s fiscal foundation.
Our focus over the last eight years on talent, transportation, training, technology, and transparency has helped create the conditions of certainty about Chicago today and in the future.
That is more important than ever, in a world that is becoming more and more uncertain every day.
But for all of that progress, and for all of that certainty, there is still one flashing yellow light of uncertainty and instability about Chicago’s future.
I am speaking, of course, about our pensions.
For the last seven and a half years, we have worked together to stabilize, strengthen andsecure Chicago’s pension funds. From our city’s pension funds, to our schools, to all of our sister agencies.
Together, we have been addressing this challenge honestly and forthrightly.
Together, we have made progress to ensure the hard-working Chicagoans we depend on have a retirement they can depend on as well.
But there is much more work to do.
We know the issue of underfunded pensions is not unique to Chicago. In cities and states across America, unfunded public pension liabilities total trillions of dollars.
This is a challenge for the State of Illinois, and many of its municipalities.
But while this challenge is not unique to Chicago, it is present in Chicago, and we must solve it in Chicago.
The truth is; going back decades too many elected officials, labor leaders, and civic leaders; people in positions of responsibility; agreed to a funding and benefits system that was not sustainable and therefore not responsible.
Some knew it, and others should have known it.
Simply put, leaders in the past made commitments without the resources to back them up. And now, inevitably, the bill has come due.
I ran for Mayor eight years ago promising to tell the hard truths and confront our city’stoughest challenges – our fiscal problems high among them. And, with the help of this Council, we did address them, and we must continue to address them.
As with any challenge, owning up to it honestly is the first step on the road to recovery.
That is how we helped turn a corner for the oldest pension fund in Illinois: the Chicago Teacher’s Pension Fund.
There are lessons to draw from both how our teachers’ pension challenge grew and how we addressed it and started to straighten it out.
Back in 1981, when CPS was facing financial challenges, city leadership allowed teachers to reduce their contributions to their own retirements from nine percent to just two percent.
Then, in 1995, Springfield changed the law to allow money that had been earmarked specifically for pensions to be used to cover other costs. And that is just what the powers that be did.
In the years that followed, CPS made little or no contribution to the teachers’ pensions.
The problem with so-called pension holidays is that when the holiday and the partying is over the bill must be paid.
On July 1st, 2015, I laid out a plan for a three-way handshake between the teachers, the state, and taxpayers. To pull us out of the hole, everyone would have to step up and do their part.
A year later, in 2016, we reached an agreement with the teachers’ union that newly hired teachers would go back to paying the full nine percent of their salaries, rather than two percent, towards their retirement, ending 35 years of a virtual free ride.
The following year, in 2017, the historic school funding formula we fought for from Springfield was passed into law. The state’s contribution to Chicago’s teachers’ pensions rose from 12 million dollars a year to 221 million dollars a year and growing, ending the state’s decades-long shortchanging of Chicago taxpayers and teachers.
The bill also authorized the Chicago Board of Education to reinstate dedicated resources to help meet its pension obligations.
As a result of that three-way handshake, Chicago Public Schools no longer faces an annual budget crisis, having to choose between funding education for our children or funding pensions for our teachers’ retirement.
In the not too distant future, not a penny of the CPS operating budget will have to go to the pension fund.
In the last 18 months, all three ratings agencies have cited this recent progress as a reason for upgrades in their ratings and outlooks for Chicago Public Schools.
Just like with the teachers’ pensions, my north star for strengthening all of the City’s pension funds has always been a progressive, shared approach: revenue and reform.
Consistent with that philosophy, the first place we went in the early days of my tenure as mayor to solve our City’s pension challenges was to the bargaining table.
As soon as I took office, we began discussions with the unions representing laborers and municipal workers.
At the rate we were going, the municipal employees fund was projected to run dry in 2024. The laborers’ fund in 2026. Think about that. Six years from today, one of thecity’s four funds would have been bankrupt.
To labor leaders’ great credit they not only acknowledged the challenge; they wanted to be part of the solution.
Working together in a spirit of cooperation, we reached a fair agreement with 28 unions. Automatic, unsustainable 3 percent compounded cost-of-living adjustments would come down, and be in line with what retirees need and the funds could afford. At the same time, the City’s contribution to the pension funds would increase appropriately.
Labor leaders supported the changes, and they should be applauded for that. This Council supported the changes. It was a shared approach that preserved and protected the pension funds along with workers’ retirements and the City’s economic future.
As you know, the Illinois Supreme Court struck it down under a clause that was added to the state constitution in 1970.
The Court’s ruling eliminated a balanced solution. But it did not eliminate the problem, it just made it harder to solve in an equitable way.
So we redoubled our efforts, worked with the General Assembly, and passed legislation that put all City pension funds on a path to actuarial funding.
As a result, by 2055, the Police and Fire pension funds will reach 90 percent funding. By 2058, the Municipal and Laborer’s funds will reach 90 percent funding.
With a funding framework and schedule in place, this Council stepped up and dedicated revenue streams for the first time for all four funds.
No longer would our city make promises without the means to actually pay for them. Instead, we provided:
$543 million in additional annual dedicated revenues for the Police and Fire pension funds.
Over $240 million in annual revenues for the Municipal Employee’s pension fund.Over $40 million in annual revenues for the Laborers’ pension fund.
All told, since 2014, we have dedicated more than $800 million in new resources to secure the benefits earned by our employees.
These were not easy votes. I don’t have to tell you. But they were the right votes to secure a stronger future for Chicago.
For all the criticism those votes received, no one will repeal them. Every idea to address our pension challenges going forward builds on the fiscal foundation we put in place.
We know these votes were a break with the past in terms of being honest about the true cost of pensions.
We know they have resulted in an improved financial outlook for the City, and helped pave the way towards economic and job growth.
But we also know they were not the final steps in meeting our obligations.
In 2020, just around the corner, the City will need another $276 million in new revenue to pay for higher Police and Fire pension contributions.
In 2022, new revenue for the Municipal and Laborers’ funds is projected to increase by $310 million.
These contributions must be made. There are no if’s, and’s or but’s about it. That is not just my opinion. That is the law.
Funding workers’ retirements going forward will require more smart and tough choices. It will require balancing our pension obligations with the obligation to keep growing the economy, creating jobs, and making Chicago a destination for economic growth by investing in our future.
While there is no single solution to this challenge, I believe there are sequential steps we can take to keep moving the ball down the field. And I believe those steps must be based on progressive principles.
There is a conversation in Springfield today about amending the constitution to allow for a graduated income tax.
Now, I have always been for a progressive income tax. Throughout my life, serving President Clinton and President Obama, in Congress, and as Mayor, I have fought to expand the Earned Income Tax Credit every step of the way.
I believe taxes should be progressive. It makes sense morally, and it makes sense fiscally.
There are only four states like ours with a constitutionally mandated flat tax. It is regressive, it is a fiscal straightjacket, and amending the constitution is the only way to set things right.
But I believe it would be a fundamentally missed opportunity if we made our tax system appropriately more progressive, but left in place a benefits system that is regressive.
Too many people look at our pension obligation through a green eyeshade – in terms of dollars and cents. That is just one way to see it, but it is not the whole picture. The other way to look at this is in terms of our principles and priorities.
That is why I am also for amending the clause added to the constitution in 1970 that caused the Supreme Court to shoot down our initial agreements with laborers and municipal employees.
Think about it. What kind of progressive, sustainable system guarantees retirees 3 percent annual compounded pay increases when inflation has been at basically zero and current employees have at times been furloughed, laid off, or received minimum pay increases?
There is nothing progressive about 3 percent compounded raises for retirees and furloughs for workers. The mantle of progressivity must not just be more taxes on the wealthy, it must be more respect for our workers’ paychecks. I applaud our labor unions for being willing to fix this inequity in 2012 with me.
The fact is, a 3 percent compounded COLA in an era of very low inflation is not progressive and not sustainable. Now, it made sense in 1970 when we had more workers than retirees and high inflation, but it does not make sense today.
In fact, over the next 40 years, experts estimate that the City will contribute 42 billion dollars to our pension funds just to cover the cost of the 3 percent annual COLA. Just that portion. That works out to more than a billion dollars a year over 40 years.
Amending the state constitution to allow for both a progressive income tax and new agreements with labor is an important step towards fiscal stability and progressivity.
Coming at this challenge from both sides, revenue and reform, is the clearest path out of this challenge and the fairest. I said that when we started our discussions with labor almost eight years ago. I believed it then, and I believe it today.
It will not be accomplished overnight. Amending the constitution takes years and requires votes by both the legislature and the public. In the interim, I support the consideration model, which would provide employees with a choice of how they want to structure their own retirement plans.
It is not a perfect analogy, but a consideration model is close to what we have done with health care negotiations here in the city. Younger workers are choosing less expensive plans with tighter networks, older workers are choosing plans that work best for them at this point in their lives, and as a result today the City’s healthcare budget is 33 million dollars less than it was the day I took office almost eight years ago.
As a second step, I want to turn now to a subject that has generated a lot of heat but very little light.
Let me state why I believe our city should issue Fund Stabilization Bonds.
Issuing these bonds, and depositing the proceeds directly into our pension funds, would immediately increase the health of our pension funds to levels not seen in at least a decade before asking more of Chicago’s hard-pressed taxpayers.
Our funds would go from an average of 26 percent funded today, to 50 percent.
I want to walk you through why I think this plan makes sense, having studied it for months.
It is a lot like refinancing your mortgage at a lower rate. And here is how it works.
As a part of calculating its liabilities, each of the four funds makes an assumption about the investment earnings they expect.
The assumed rates of return range from seven to seven and a half percent. Experts use those same rates of return to calculate how well our pensions are funded.
As a result, Chicago is effectively paying seven to seven and a half percent interest on our pension liabilities, or our debt, which we don’t have to.
We can refinance a portion of that debt at lower rates, locking in savings of as much as 2 and a half percent over 40 years. Now that works out to between 6 and 7 billion dollars in savings for Chicago taxpayers.
It is not more debt. It is the same amount of debt, but at a much lower and cheaper cost to taxpayers and the city.
Let me be clear about what else this is not.
First, it is not like the bonds the State issued in 2003. They used billions of dollars from those bond proceeds to plug operating holes in their budget. It was a bait and switch.
Under this structure, all proceeds must go directly, immediately into a lockbox for the City’s pension funds to be invested. Nowhere else.
Second, unlike the state’s pension bonds, this is part of a broader plan, with specific dedicated revenue sources backing up the bonds. The state’s bonds were not backed upby any specific revenue for the pensions.
Third, it is based on realistic projections. Through ups and downs in the market, there has never been a 30-year period when pensions have not earned at least 8 percent return on their investments.
The fact is, we as a city owe this money.
At one level the question is are we going to ask our taxpayers to pay 7 and a half percent, or a lower 5 percent?
I believe that whatever we ask of taxpayers should be the lowest possible amount.
I know this plan has risk. The truth is, there is risk in every choice and there is a risk if you do nothing. The question is: which calculated risk is worth taking for the benefit gained?
If you raise taxes too high you risk that businesses will not come to Chicago and you risk adversely affecting the overall health of the economy.
If you put off tough choices . . . you risk credit downgrades and all that comes with them economically and to our reputation.
Instead, by issuing these bonds, we would immediately improve the health of each pension fund.
We would decrease the amount of projected new revenue that will be required over the next 50 years just to fund pensions by almost seven billion dollars.
We would save Chicago taxpayers as much as 200 million dollars in the City’s nextbudget, without creating any more total debt than we have today.
The new revenue required in 2020 would drop from 276 million dollars to 76 million dollars.
Because I believe it is the right thing to do for our retirees and our taxpayers, today I will be introducing an ordinance that would create the necessary structure.
This proposal requires thorough analysis and the time everyone needs to fully understand it and ask the necessary questions.
That is why this ordinance is just the first step of a two-step process. The next step would require an additional level of Council approval to actually issue the bonds. You will have two bites at the apple.
If the next Council and next Mayor want to take a different approach, it goes away.
I would add one caution that there is not an endless amount of time. Interest rates have been going up. The Fed Chairman has indicated they will hold steady, but we do not know for how long that will be the case.
There is a window in the market today for this to work. At some point that window will close.
I believe this step could help strengthen our pension funds immediately and minimize the cost to taxpayers.
Another step that holds promise is new revenue from gaming.
As you know, I have been for a Chicago casino in the past. It is an idea I still support, if we use that new revenue to stabilize our pensions.
Last week, I met with Representative Bob Rita to talk about the future of a Chicago-owned casino. He is leading this effort in the Illinois House of Representatives.
We are looking at the impact of a Chicago casino on job creation, local economic development, tourism, tax revenue, and city services.
Next month, a full legislative package will be introduced in the General Assembly to continue statewide negotiations. I will present Chicago’s priorities in those negotiations.
I believe a clear plan to direct gaming resources to pensions could represent one piece of a broader four-part strategy. But we need to be clear-eyed about the fact that revenue would not materialize until years from now.
Likewise, Illinois legislators will be taking a serious look next year at legalizing recreational marijuana.
Should they follow that course, a portion of that revenue could go toward strengthening our pension funds and securing the retirement of the workers who depend on them.
I believe recreational marijuana has social costs that must be considered. And like a casino, revenue would take time to be realized.
But if the State goes down that path, those resources can and should be used to further solidify our pensions without asking more of Chicago taxpayers.
If we take all of these steps, from a consideration model, to amending the constitution, to issuing bonds, to a casino, to recreational marijuana, we will dramatically reduce what is asked of our taxpayers.
We will meet our goals of both stabilizing Chicago’s pension funds and asking the least amount from Chicago taxpayers.
The City of Chicago’s pension challenge has accrued over decades, and will not besolved overnight.
We got into this challenge because elected officials and labor leaders made promises, without telling the full truth about what they would cost.
Even when the size of the problem became clear, it was easier to turn a blind eye. But together, over the last eight years, we took a fundamentally different approach.
Rather than passing the buck, we have directed billions of dollars to shoring up our city pension funds.
Rather than burying our heads in the sand we have confronted our pension challenges with honesty and clarity so our workers can retire with dignity and security.
For workers and retirees, pensions represent the work of a lifetime, the hard-earned reward for years of showing up every day to do their job, keep their word, and live up to their responsibility. You have made it your life’s work as well – to do your job, keep your word, and live up to your responsibility. And I commend you for it.
Whatever the results of the coming election, we cannot afford to return to the politics of the past, where promises are made without the means to fulfill them, or where we refuse to confront challenges by delaying and denying the choices that are required.
We cannot allow the boulder we pushed up the hill over the last eight years to roll back down.
That is not fair to our workers and retirees. That is not fair to our taxpayers. And it is not fair to the children and young men and women who want to make their futures here.
The reason Chicago has made so much progress is because Chicagoans are unafraid to do hard things. We do not run from our challenges, we confront them head-on.
We turned the shortest school day in the country into a Full School Day and Full School year, started on the path to universal full-day pre-k for four year olds, put academic and financial crises at CPS in the rearview mirror, and today our students are raising the bar for success and are better prepared to seize opportunities and excel in the future.
We transformed our community colleges into the best college to career system in the country, significantly improved the graduation rate, and from Kennedy King in Englewood, to Olive Harvey in Pullman, to Malcolm X on the Near West Side, we are sending students to college for free and they are graduating college debt free.
We made new, transformative investments in neighborhoods that had seen decades of disinvestment; from new student sports centers, to new grocery stores, to new El stations, to new parks, playgrounds and libraries that make our neighborhoods great places to live, work and raise a family.
We turned Chicago into a two-waterfront city and strengthened our city’s foundations, including unprecedented modernizations at our airports and mass transit system that will keep Chicago moving into the future.
These are not things that just make a difference today, or tomorrow, but for generations. They will stand the test of time and be worthy of our time in public service.
That is why I know we can tackle this challenge too.
By marshaling the same grit and determination it took to make that progress we can continue to make progress on our pensions. This is the last summit to climb.
With candor, courage, and a commitment to work together, we can rise to meet this challenge as we have risen to meet every challenge facing this great city.