The Chicago Park District’s efforts to solve its pension funding crisis received a boost in a new labor contract.
“The district’s plan for the pension fund contributions is to be at actuarial funding after a multiyear ramp-up. We are currently working to get full union support before presenting legislation in Springfield,” district spokeswoman Michele Lemons said.
The district has been working on a revised funding scheme since the courts last year tossed its 2014 overhaul that was designed to stave off insolvency. “The fund is in imminent danger of insolvency and the assets are projected to be depleted in the next eight years,” reads the latest actuarial report. Two Chicago funds were headed toward insolvency until the city several years ago won legislation cementing higher employer contributions.
The voided legislation would have increased the retirement age for some employees, changed the formula used to calculate automatic annual increases for both current and future retirees, eliminated automatic annual annuity increases in 2015, 2017 and 2019, and raised employee and employer contributions.
The court concluded they violated the constitution’s pension clause giving contractual rights to pension fund members and barring the impairment or diminishment of benefits.
The new plan in the works was aided by a labor agreement struck with members of Service Employees International Union Local 73, which represents two-thirds of employees.
The cost of the contract over its 4.5 year length is $14 million and it includes a 1.5% increase in healthcare contributions from employees that will generate $1.5 million. The district will put that money toward the eventual pension funding scheme that will be the subject of state legislation.
“I would like to personally thank union leadership for their efforts to reach a resolution that puts Chicago’s children first, addresses the needs of our workforce, protects taxpayers and provides reform measures for the district’s pension,” the district’s general superintendent Michael Kelly said at a news conference announcing the deal alongside Mayor Lori Lightfoot.
The timing of the deal two weeks ago averted a district employee walkout just as a Chicago Public Schools’ teachers strike was set to begin. Many parks have hosted students during the strike. While the city and district are separate legal entities, the mayor controls leadership appointments.
The pension fund was just 32% funded in 2018, down from 37% in 2017, according to the 2018 actuarial report prepared by Segal Consulting. Total unfunded liabilities rose to $775 million from $654 million, with $83 million of the growth due to assumption changes.
The district made a regular payment of $14 million this year compared to an actuarially determined contribution that would total $62 million.
The district overhaul that was tossed by the courts called for supplemental district contributions and it continues to make them despite the court’s tossing of the legislation. The district is making a $13 million supplemental contribution this year.
“As we have stated in the past, increases in pension contributions will come from debt service savings from refundings, accessing personal property replacement tax revenues through the conversion of bonds secured by PPRT to limited tax bonds, moderate property tax increase, and revenue enhancements from various user fees and reductions to expenditures,” said chief financial officer Steve Lux.
The Chicago Civic Federation warned in a 2019 budget review of the need for pension action.
“While the federation is encouraged by the district’s positive budgetary reforms, any achieved savings and efficiencies pale in comparison to the magnitude of its pension problem. A new plan of action is imperative,” said Civic Federation President Laurence Msall.
A district bond sale last year that saw refunding savings and freed up $16.6 million of revenue by shifting the security on some refunding debt helped cover higher pension contributions. The district also has $29 million in a special pension reserve for future supplemental contributions.
While the district’s pension woes weigh on its profile, Fitch Ratings last year affirmed its AA-minus rating and stable outlook; Kroll Bond Rating Agency affirmed its AA rating but shifted its outlook to negative; and S&P Global Ratings affirmed its AA-plus rating and stable outlook. Moody’s Investors Service, which rates the district at a junk level due to governance ties to Chicago, was not asked for a rating. The district has nearly $800 million in GO debt.
