Water Tax Hike Alone Won’t Fix Pension Fund
Chicago aldermen will vote Thursday on raising water and sewer fees by 30 percent over the next several years. The stated goal is to put the money toward one of the city's massive ailing employee pension funds. But new analysis Wednesday shows that the new taxes will just be enough to buy some time. City officials will likely have to go back into taxpayers' pocketbooks again in the near future.
Taxpayers wary of this possible 30-percent hike in water and sewer fees, beware: it’s likely just the beginning. New numbers from the city show that it will put a dent in the massively underfunded Municipal Employees Pension Fund, the largest of the four city pension funds, but it’s only enough to cover increased costs for the next five years. After that, the city by law will have to make what’s called the “actuarial required contribution.” Starting in five years, that’ll be nearly a billion dollars a year, and the city will need to find other sources to fund that and in the years going forward, where the payments could be near $2 billion.
That has angered some aldermen who say they were sold a bill of goods. They say they were under the impression that these new fees would solve the problem, case closed, but now they’re learning it’s not the case.
“I would challenge the mayor to start finding less regressive forms of revenue,” said Ald. John Arena (45th Ward). “This is going to hit fixed-income, low-income people the hardest.”
“The mayor is asking us to take a hard vote on working-class homeowners who pay water bills,” said Ald. Ricardo Munoz (22nd Ward). “We need to know how that works out and where that puts the pension funds in terms of their liquidity. The bottom line is, I’m not about to give him a blank check.”
Also on Wednesday, a report from the new Council Office of Financial Analysis issued a similar report saying the pension fund would still deteriorate, but at a slower rate with the new revenue. And if the funds’ investments don’t perform well, all bets are off; taxpayers could be on the hook for hundreds of millions more.
Right now, the combined water and sewer cost per 1,000 gallons is $7.62 per month. Under the proposal, that would go up 59 cents next year. By 2020, it would be an additional $2.51 every year, bringing the total water/sewer bill to $10.13 per 1,000 gallons. For the average family that uses 7,500 gallons per month, that’s an additional $19 per month.
Despite Wednesday’s reports, the mayor insists that the pension fund is now on a road to recovery.
“When I became mayor, our four pension funds were headed toward insolvency,” Emanuel said. “The four of them are now headed toward solvency. We are now going from insolvency in our pension funds to solvency, people can retire and we will meet our obligations.”
The mayor is semantically correct because the new ordinance requires that the city no longer shortchange the pension payments. The key is that the new water tax revenue only covers the next five years. That’s the case for the three other city pension funds as well. After that they’ll need hundreds of millions more in revenue. Some aldermen are telling us that means one thing: higher property taxes again and again.
Aldermen are set to vote on this new tax package in Thursday’s City Council Finance Committee meeting. The other piece of this pension reform plan reduces some benefits for new employees. That will have to be approved by the Illinois General Assembly.
Follow Paris Schutz on Twitter: @paschutz
Aug. 4: Mayor Rahm Emanuel wants to slap a tax on water and sewer bills. We take a closer look at the proposal with a panel of aldermen.
Aug. 3: After the big property tax hit, another new tax may be on the way for weary Chicagoans. Find out how much it might cost and why the mayor says it's necessary.
June 30: Have decades of budgetary tricks and rising pension costs made bankruptcy inevitable for the city of Chicago as well as its public school system? We debate the issue.