Illinois Gov. Pat Quinn signed legislation Monday to help Chicago reduce a multibillion-dollar pension shortfall for two of its pension systems, but advised Chicago Mayor Rahm Emanuel and the City Council not to raise property taxes for needed revenues.
An early version of the measure contained a property tax hike, which Emanuel said was necessary to avoid cuts to services. The provision was later removed, something Quinn noted in his decision to sign the bill.
"As the mayor and members of the Chicago City Council work to identify savings to meet their (pension) obligations ... I urge them to rule out a property tax increase on Chicago homeowners and businesses," Quinn said in a statement. "I recognize that Chicago's mission to find real solutions to its financial challenges will not be easy."
The law, which starts to take effect in January, addresses pensions for Chicago's municipal employees and laborers, affecting about 57,000 employees and retirees. It would nearly eliminate the $9.4 billion shortfall in those funds by cutting benefits and increasing contributions for both the city and employees.
In a statement, Emanuel called the new law "another step toward correcting the series of financial challenges that have been building over the last few decades." Emanuel said he would work with City Council members to find "alternative options" to replace property taxes as a revenue source for at least a year.
The legislation has been a political problem for Quinn, who faces a tough re-election race against Republican Bruce Rauner.
On one hand, Quinn has vowed to avoid increasing property taxes and even called for a property tax refund earlier this year -- an idea that went nowhere in the General Assembly. On the other hand, if he had rejected the bill it could have complicated his relationship with Emanuel, another top Illinois Democrat.
Rauner, a venture capitalist from Winnetka, wasted no time in blasting Quinn on the decision.
"I would have vetoed this law -- but Pat Quinn likes to raise taxes and left homeowners holding the bag again," Rauner said in a statement minutes after Quinn's decision. "This should have been a no-brainer -- veto the bill, don't squeeze Chicago families even more."
At the same time, a coalition of unions that's filed a lawsuit over the state's pension overhaul, called the new law unconstitutional and said it would sue. The We Are One Chicago union group said the plan is unfair and would disproportionately affect women, minorities and the low income.
"Mayor Rahm Emanuel's pension-slashing plan, now signed by the Governor, is wrong for Chicago," a group statement read. "This is no victory for the Mayor, but a huge, missed opportunity to find a truly fair, constitutional solution."
Emanuel, who took office in 2011, faces re-election next year. Already, several aldermen have opposed raising property taxes.
Chicago has the worst-funded retirement systems of any major U.S. city and has yet to address police and fire department pensions. There's an approximately $20 billion shortfall in four accounts and another $7 billion debt in the fund for Chicago Public School teachers.
The shortfall is largely the result of years of the city not making large enough contributions to the funds. Emanuel, who inherited much of the problem from the previous administration, has said the changes are needed to avoid an even larger tax hike, severe cuts in programs and services and the potential insolvency of the city's retirement funds.
But pension programs are created by state law, so only state legislators can make changes.
State lawmakers last year approved a sweeping overhaul to reduce the state's $100 billion pension shortfall debt. The plan would cut workers' and retirees' benefits.
Before signing the law, Quinn gave little hint of his plans and waited until the last day he had under Illinois law to act on the bill. Earlier Monday, he described his thought process as following his conscience to do the best thing for the state.