>> Illinois House Bill 3657, gives a pension boost to firefighters and police officers.

At issue is whether Chicago can afford it.

A warning from Wall Street ratings agencies SNP shows the bill will add 11 billion dollars to the city's pension liabilities deep in the city's projected 2026 deficit of 1.2 billion and could lead to another credit rating downgrade.

Joining us to figure these issues out, our Austin Berg, executive director of the Chicago Policy Center.

That's part of the Illinois Policy Institute and author of the New Chicago Way.

And Ralph, more Terry executive director of the Center for Tax and Budget Accountability and professor of public policy at Roosevelt University.

Gentlemen, thanks for joining us.

Welcome back.

Thanks, Brandon.

Ok, so the city's annual financial report found that at the end of 2024, Chicago's police and fire pension fund had funding levels close to 25%.

city analysis shows that the bill would hurt the progress and drop both pension funds to less than 18%.

Austin, starting with you first, is this new laws that working against the city's progress?

Absolutely.

I would say this is one of the worst pieces of legislation since the parking meter deal for Chicagoans.

That's and it's bad for the same reasons.

One, it's financially irresponsible.

>> You just showed in that graphic, bring them to 18% funded.

These are already the worst funded police and fire pensions in the entire nation.

>> It also adds pension debt at a time when Chicago's already paying more towards pensions and debt than any other big city and the nation.

So that's the first reason financially, irresponsible, but also morally reprehensible.

In the same way the parking meter deal was and that saddles young Chicagoans, our kids and grandkids with billions of dollars in liabilities.

This bill cost 60 million dollars in next year's budget in 30 years.

It's taking a 750 million dollar chunk out of the budget that's taking opportunities from kids and grandkids who had no part in this decision.

So the bill unanimously passed the General Assembly.

The governor signed it.

City Hall has expressed concern but did not lobby against it necessarily.

What does that tell you?

>> Tells me that politicians are not serious about solving the pension crisis in Illinois.

And it's really irresponsible that Brandon Johnson did not speak up until the governor to veto the U.S.

I will say on the Comptroller, Susana Mendoza had a great line about this bill, which was that brother is a police officer.

And she said going from 25 to 18% funded.

That's not securing the retirement of police and fire.

Don't say this is about first responders.

It's making their retirements more fragile and less secure.

18% is on the road to insolvency route.

How do you think this bill works against or towards the city's progress?

Like think you have to put everything in context and that's really what's missing from the discussion.

So part of context, number one.

>> It's attempt at fixing part of the tear to pension problem.

The state of Illinois and local governments faces here to meaning those who were hired after 2010, right?

It's a lower pension benefits and the was provided before the state passed that in 2010, as you know, they tried to save money with that.

The problem is tier 2 falls out of safe harbor for Social Security.

So at a certain point, the state of the city would have to enroll all these workers into Social Security, which is far more expensive.

Then the fix, the state put to Chicago police and fire pension problems.

But it's the first fixed it here, too, with irresponsible were all agree with Austin is the state should have funded this.

I mean, as part of the legislation did exempted themselves from the state mandates law, they would have had to fund this and they're fixing a problem.

State legislators and the governor that they created when they created tier 2.

So throwing this cost on the city really makes no sense.

It's something the state should assume because the state created the problem, the first place and the state can assume it by adjusting a couple things are doing right now without raising taxes on anyone.

I mean, number one, there's a local revenue called the Personal Property replacement acts.

that's supposed to only go to local governments.

Well, the state's been dipping into it the last few years and last year, in fact, they dipped into to tune of 11.5% took away from local governments.

That's 36 million dollars.

They cost the city of Chicago alone.

Just stop doing that.

There's 36 million the cost of this bill next year's 52 Million.

No one pays more in taxes.

And the city is just getting to collect this local revenue source.

The second one is the local government distributive fund where the state of Illinois shares its income tax revenue with local governments when the state increased its income tax rate, it cut the share.

Local governments get out of this fund to keep them.

But the old rate just going back to the old cheer.

There's 235 million once again.

No one paid more in taxes.

The city Chicago's may hold.

All right.

I want to come back to the state later on.

If there's time to get give us a little bit contacts route because that are pending or pension funding levels pale in comparison to the national average, which is 70%.

>> We're talking 25 down to 18% now after passage of this bill, how did we get here?

Well, we got here primarily not by benefits or anything in aid to the pension systems.

We got here because for generations, the state of Illinois, once again scattered you got include the state the state of Illinois and acted legislation that allowed the city to Chicago underfunded pensions.

>> Building up an unfunded liability in effect.

You look at the growth in the unfunded liability.

It's now standing at about 36 37 billion dollars, which is a lot of money.

26 of that grew and 20 year period just recently, almost all of which was due to underfunding pensions benefits and salaries actually didn't add to that increase at all.

The other things that add to it were changes in assumptions investment losses during the recession said the city did what a lot of folks are on kicking the can down the road.

Basically.

>> And on state unable to him.

Okay.

And I'm sure the state would have words about that as well.

But they're not here tonight.

So we've got you too.

So this new pension bill would make some major changes.

Austin, it changes the way to CPD employees.

Final average salary is calculated.

So it used to average the last 8 years now it is the higher average of either the last 8 years or the last 4 years.

What affects what's the impact of that shift?

>> Well, it's 11 billion dollars liabilities that we can afford.

And by the way, the state can't afford that either.

So the idea that the state is going to pay for this, especially off to Congress, asking for a bailout for CTA and Chicago public schools that they were going to take on this new pension benefit.

I think it's ridiculous.

I also think it's a total red herring in the bill sponsor said that's saying it tonight.

This idea that this was to fix safe harbor.

Safe Harbor is a rule from the IRS that says if you're a government worker and you're not getting Social Security, you better get a benefit.

That's as good as Social Security.

So safe harbor make sense.

But saying that the sweetener was about safe harbor is like saying I heard a leak in my basement.

So I demolish my house and I bought a new one next door.

It is a sweetener.

It's not a fix.

And even though the bill sponsor said this actually does not fixed safe harbor.

So we need to be serious about this.

We cannot keep giving these new benefits because as we've seen, this is how we got here way over, promising and underfunding.

And this is this is doing that even more and and generations of Chicagoans will pay for this irresponsible behavior wrote, how will this impact Chicago taxpayers?

You know, like I said, it doesn't have to impact him at all.

I mean, the state could right now cover this payment by just shifting some of the ways that shares revenue with local governments, period and a story and it should do that.

It is every >> responsibility to do that because the fix its making.

I just disagree with us than it does address tier 2 and frankly, we're going to be looking hire, could I finish?

We're going to be looking at higher pension costs across the board for a defined benefit systems because every analysis shows that they are falling out of that here out of the safe harbor and so tear to benefit, have to go up.

And this is a problem the state created.

So it's a problem stated fund and unlike local governments, the state has more revenue options in its tool kit to deal with the problem.

The city, Chicago for more restricted in its revenue flows in.

And really, if you trace these fiscal connections together very clearly.

The reason we overall rely on property taxes to fund schools and to all these other things that our property tax burden is relatively high in Illinois, even though our overall tax burden, state and local combined his Midland is because the state doesn't fund what it should be.

Funding.

It should step to the plate.

It created this problem.

It should fund the problem and there are ways to do it.

Austin, 750 million dollars and 30 years that could pay for thousands of potholes being filled.

You could pay for thousands of new positions in our schools pay for police and fire.

Instead, it's going down the drain to pensions and debt and it's going to be paid for by people who are not even born yet.

Today.

And that is morally irresponsible, by the way.

But you're there's a lot of Nelson Cirino.

The additional cost of their own have to for I finish so safe harbor.

Again, we're hearing that we need to do this to fix a farmer.

The feds are going to come down our throats.

There was not a single actuarial analysis presented to the public before this past in Springfield.

>> Showing that that was a problem when and who was affected by the safe harbor issue.

So you can't say pass a bill billions and billions of dollars on to the backs of young Chicago in say, just trust us, it's going to fix this problem what it should be alternative because we have heard from the state.

The state is not coming to save Chicago.

One likely any number of things we just talked about.

Chicago public schools on this program last night.

The deal was done in the bill is done.

So how is the city going pay for it?

>> the city is going to have a really hard time paying for it.

So I think there's 3 things that need to be done.

>> One, all new employees should not be going into the sort of defined benefit pensions.

If that was a consumer product that would have been taken off the shelves long ago.

It's it's really doing harm to the city of Chicago and to retirees, second constitutional We protect pension benefits that have been earned to date.

But going forward in the future, we have to have changes there to protect retirement security and protect taxpayers 3rd.

And this speaks to political courage which we've not seen from anyone in Springfield ore in Chicago.

We need to allow in Illinois just as Texas in California do.

And 23 other states municipal bankruptcy chapter 9 bankruptcy bankruptcy is a heavy word.

The chapter 9 is the only way we're going to be able to get debt relief for young Chicagoans who had billions of dollars poured onto them by mistakes of the past.

You can renegotiate pensions and that court and you can renegotiate things like parking meter deal, bad, corrupt deals.

Real quick, Ralph.

Absolutely not.

I mean, it's the most irresponsible talk about irresponsibility letting letting the public sector declare any kind of bankruptcies of bodies, irresponsible as you can get.

This number one, number 2.

>> We're blaming the benefits here when the benefits the problem at all.

It's been irresponsible approach to funding the benefits and in fact, this increase in benefits was needed to bring us a tip or 2.

We're going tear to up to the harbor.

We're going to need more increases in benefits across the board to get there.

Number 3, the benefits having contributed to the growth in the unfunded liability in the last 20 some odd years.

It's all been irresponsible.

Underfunding investment losses in couple of recessions and changes in assumptions.

So the state can and should fix these problems by just intimates revenue.

Prout policies and frankly, we could fix the city, you know, Congress pension problems by really ties into debt.

This class done yet.

And that is where we have to leave it.

I love that.

You know, you numbers, guys, you show up with your 3, 4, 5, 6 point plans.

I appreciate it.

But we're going to have to leave it there.

Auston Bird rapper Terry, thanks to both She ate it.

Thank you.

>> And for an introductory explainer on why Chicago's pension debt is so high.