Chicago's $35.9 Billion Pension Debt Continues to Challenge City Leadership

A stark assessment from a seasoned political observer suggests that Chicago's formidable pension liabilities could overshadow the agenda of any incoming mayoral administration. On the "Blue City Blues" podcast, an unnamed "old political hand" asserted, > "It doesn't matter who the next Mayor of Chicago is because pensions will eat everything," highlighting the deep-seated financial challenge facing the city. This sentiment underscores the persistent fiscal burden that has plagued Chicago for decades.

Chicago's four public employee pension systems collectively face a significant unfunded liability, recently reported at $35.9 billion as of 2024. These systems, covering police officers, firefighters, municipal employees, and laborers, have some of the lowest funded ratios nationwide. In 2022, their aggregate funded ratio was merely 24%, far below the typical 80% considered healthy for public pension plans. While there was a recent $1.3 billion decrease in 2024, the debt has grown by approximately $4.1 billion since 2019.

Experts, including the Center for Tax and Budget Accountability (CTBA) and Equable Institute, attribute the bulk of this crisis not to overly generous benefits, but primarily to decades of statutory underfunding and the compounding interest on that debt. A forensic analysis by Equable Institute indicates that "Interest on the Debt" accounts for 35% of the total unfunded liabilities, resulting from long amortization schedules that target only 90% funding by 2055-2059. Investment losses and changes in actuarial assumptions also contribute significantly to the shortfall.

In recent years, city administrations have attempted to mitigate the growing debt. Former Mayor Lori Lightfoot's administration initiated an "Advance Pension Payment Policy," contributing more than legally required, a practice continued by Mayor Brandon Johnson, with an additional $306.6 million paid in FY 2024. Efforts to generate new revenue, such as the Chicago casino, were also aimed at supporting pension funds, though initial casino revenues have fallen short of projections.

Despite these efforts, Chicago faces a projected $2.76 billion pension bill in 2026, driven by state laws mandating higher funding levels over the coming decades. The city's corporate fund, which supports essential services, is increasingly diverted to cover pension obligations. Furthermore, a 2010 law creating a "Tier II" pension system for new hires is now seen as problematic, potentially requiring costly fixes to meet federal standards and further impacting unfunded liabilities. The long-term fiscal stability of Chicago remains heavily tied to its ability to address this persistent and complex pension challenge.