[One recent media report is emblematic of the kinds of errors the
press makes when it sees a chance to put pressure on a Black
progressive mayor.]
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CHICAGO HAS A PENSION CRISIS, BUT IT’S NOT PROGRESSIVES’ FAULT  
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Dean Baker
July 19, 2023
The New Republic
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_ One recent media report is emblematic of the kinds of errors the
press makes when it sees a chance to put pressure on a Black
progressive mayor. _

Chicago Mayor Brandon Johnson, National Nurses Organizing
Committee/National Nurses United

 

Bloomberg ran a piece
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weekend surveying the dire situation of Chicago’s public employee
pension fund. The main point was that the city’s unfunded pension
liability will pose a huge problem for Brandon Johnson, the city’s
newly elected progressive Black mayor.

To illustrate the severity of the problem, the piece included a graph
that showed that both the city’s annual pension payments and its
unfunded liability are much larger relative to its budget than is the
case for a number of other major cities. The picture does look pretty
bleak.

However, an important fact was missing from this discussion.
Chicago’s public-sector employees are not enrolled
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Social Security system.

While the vast majority of workers in the United States are covered by
Social Security, it is still not quite a universal system. When the
program was established in 1937, important groups of workers were
excluded, most notably domestic workers and agricultural workers. The
excluded workers were disproportionately women and Blacks. The
exclusion of many Black workers helped to make the program palatable
to Southern Democrats, who were not happy about Black workers getting
the protections offered by Social Security.

While the program initially only covered around half the workforce,
the categories of excluded workers were gradually reduced, so that it
is now the near-universal program we know today. The one major
category of workers that is still outside the system is state and
local government employees. Roughly 25 percent of these workers are
still not covered by Social Security. Chicago’s employees fall into
this category, as do many public-sector employees in Illinois as a
whole.

Why does all this matter? Most immediately for this piece, it matters
because it means that the Chicago system’s liabilities effectively
include money that would be paid by Social Security to public-sector
workers in other cities. That hugely inflated the size of its
liabilities relative to cities where workers do get Social Security
benefits in addition to their pensions.

The fact that public-sector workers are not in the Social Security
system also raises another important point. For most workers, of
course, employers contribute their share of employees’ wages to
Social Security—under current law, 6.2 percent. The city of Chicago
does not have to make those employer-side contributions. This 6.2
percent employer contribution is money that other city governments
must send to the Social Security program every year. But Chicago,
since it doesn’t have to make these payments, can instead use this
money to meet its pension obligations. If we adjust for these
differences, the Chicago system doesn’t look as out of line with the
other cities as the Bloomberg graph indicates.

The graph shows that pension expenses in Chicago are equal to 30.1
percent of total government expenditures. In San Jose, the city with
the second-most expensive pension contributions, payments are shown as
being 18.7 percent of total expenditures. Assuming that payroll makes
up the bulk of the budget, if we add in the 6.2 percent of wages paid
as Social Security taxes in San Jose, it would take its payments for
pensions to over 24 percent of expenditures, closing roughly half the
gap with Chicago.

There is a similar story when benefits are discussed. The average
pension for a retired Chicago employee was $44,700
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2022. That sounds very generous if it is in addition to a worker’s
Social Security benefit. But it appears considerably less generous
when we recognize that most city employees will not be collecting
Social Security.

Unfortunately, news stories
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Chicago’s pension situation sometimes ignore the fact that its
workers will mostly not be getting Social Security when discussing the
size of their pension benefits. This leaves readers thinking they are
far more generous than is actually the case.

There is one other aspect to this issue that is often overlooked in
public discussions. State and local workers on average get lower pay
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their private-sector counterparts when adjusting for age, education,
and other factors. This is offset by higher benefits, but just
considering the benefits in isolation gives a misleading picture.

This matters not only in how people think about the generosity of
public employee pensions but also how they think about potential
solutions. If higher pensions for public employees help make up for
lower pay while people are working, then any move to reduce the
generosity of pensions will likely require that state and local
governments increase the pay of their workers if they want to continue
to attract the same quality of employees. Reducing pension payments
would therefore not end up being a free lunch in terms of solving the
financial problems facing state and local governments.

This piece hyping the pension problems facing Chicago and Brandon
Johnson is typical of the coverage that progressive mayors and
especially progressive Black mayors get in the media. Invariably, more
moderate mayors, such as Richard M. Daley and Rahm Emanuel, two prior
white mayors, under whom Chicago’s large pension debt accrued, were
treated as pragmatic reformers. The failure of their “reforms” is
often swept under the rug.

For example, when Emanuel took office in 2011, he proclaimed the
Chicago public schools a disaster that he was going to clean up. The
problem with this story was that his predecessor, Richard M. Daley,
had “reformers” running the schools for the prior 15 years. The
most recent one was Arne Duncan, whom President Obama nabbed to become
secretary of education.

But the gloves come off when there is a progressive Black mayor,
especially one who came out of the Chicago teachers union, like
Brandon Johnson. Suddenly the problems that have faced Chicago for
decades, like crime, poor educational outcomes, and underfunded
pensions are disasters that they are held responsible for addressing.

To be clear, the public employee pension systems in Chicago and the
state of Illinois face serious problems, as do systems in many other
states. Governments made commitments to their workers without putting
aside the funding necessary to meet these commitments. However, it is
important that the size of the problem be accurately described, as
well as the size of the promised benefits. Much of the reporting on
the topic in recent decades has not done this.

There is one final irony to the way public pension problems are
discussed. Most state and local governments had reasonably well-funded
pensions three decades ago. Then we had a huge run-up in the stock
market in the 1990s. Many cities, notably Chicago, effectively allowed
the stock market to make its pension contributions for them. The
extraordinary gain in stock prices meant that pension funds could
maintain proper funding without the normal pension contribution from
the government.

This was all great as long as the bubble continued to expand. But when
the bubble burst in 2000–2002, the pension funds were suddenly badly
underfunded. The crash of the market also threw the economy into a
recession, making it an especially bad time to increase payments to
the pension funds. Daley, who was mayor at the time, essentially
adopted the strategy of hoping that the stock bubble would reinflate.
It didn’t.    

_DEAN BAKER is a senior economist at the Center for Economic and
Policy Research and visiting professor at University of Utah._

_THE NEW REPUBLIC. Support issue-driven independent journalism.
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* chicago
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* Public Employees
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* pension funds
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* Progressives
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* Black mayors
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