Mayoral challenger Susana Mendoza vowed Thursday to use the financial acumen she gained as state comptroller to rein in city spending and have the “come to Jesus” reckoning with union leaders needed to solve Chicago’s $36 billion pension crisis.
With police and fire pension funds hovering dangerously close to insolvency — assets cover just over 23% of liabilities — Mendoza said the financial wolf is at the city’s doorstep.
Stock market gains have been driven by a handful of artificial intelligence giants. If the market takes a nosedive, retirement checks that Chicago police officers, firefighters, building tradespeople and other union employees are relying on could disappear, dragging the city under, said Mendoza, who opted to not run again for state comptroller this year.
“These continuing obligations with no ability to pay them is what drags the city into bankruptcy… It’s an absolute crisis of insolvency that we are just teetering on… When the market gets a cold, we’re not going to get pneumonia here — they will go insolvent,” she said of the four city employee pension funds.
“We have to have difficult conversations that require looking at things like consolidations and things that, in the past, have been off limits. Concessions that folks might have to give so that they still have a pension… I will have the backbone to have those conversations.”
Mendoza said she would use that same fiscal discipline to erase the city’s $1 billion shortfall without relying on one-time revenues.
She condemned Mayor Brandon Johnson for borrowing $449 million to cover back pay for firefighters and police misconduct settlements, and for using a record $1 billion tax increment financing surplus to rescue Chicago Public Schools and bankroll a new teachers contract negotiated by his former boss, Chicago Teachers Union President Stacy Davis Gates.
“It’s literally stealing economic development potential out of the communities that need it most for the next 10, 20, 30 years. I will put a stop to that on Day One,” Mendoza said. “On Day One of a Mayor Mendoza administration, we’re going to rein in spending. We’re gonna stop the hemorrhaging of our finances.”
Asked whether she would consider the employee layoffs and furlough days that Johnson has ruled out, Mendoza said she would “entertain anything that needs to be done to get our fiscal house in order.”
“There are vacancies that we don’t have to fill. There are ways to do this where you can trim the budget. The mayor has not wanted to do that at all,” she said. “Why are we [spending] 40% more in a budget today than we were in 2019? COVID money was supposed to be spent one time for COVID-related expenses… We need to go back to the 2019 budget, adjust for inflation and start our negotiations there.”
The pension commission that Johnson created shortly after taking office disbanded without releasing a single report after Gov. JB Pritzker signed a police pension sweetener that, over time, will make Chicago’s pension crisis $11 billion worse.
More recently, the Johnson administration has asked EY, the consulting firm that recommended $1.4 billion in savings and revenue-generation options for the city to consider, to devise more than a dozen strategies.
They’re likely to include pension obligation bonds and offering city employees the option of buying out a portion of their future pension benefits in exchange for a lump-sum payment.
A similar plan at the state level has reduced Illinois’ pension obligations by approximately $2 billion.
Dana Levenson, who spent three years as Chicago’s chief financial officer under former Mayor Richard M. Daley, has said pension obligation bonds and deferred retirement options are “not bad ideas.”
But even if Chicago did both of those things, the pension crisis would be only marginally improved. What’s really needed, Levenson has said, is a “constitutional convention [that] discusses the state of Chicago’s pensions. That’s when you start getting into the benefits question,” he said.
Former Mayor Rahm Emanuel learned that the hard way. He spent the first of his two terms trying to negotiate pension reforms that were ultimately overturned. The state Supreme Court upheld a pension protection clause that says those benefits “shall not be impaired or diminished.”
Mendoza is well aware of those constitutional limitations. The four city funds with, as she put it, “woefully pathetic returns,” first need to be consolidated and “professionally managed,” she said.
“We’re going to have to have some real conversations that are going to be difficult” with union leaders, “but it requires that type of leadership to stabilize the rest of our budget,” Mendoza said. “If we’re driving so much of our operating expenses towards pension obligation and not getting any growth in those pensions, that compromises our ability to do anything else, including hiring police.”