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City overstates furlough savings, inspector general says

Chicago's public pension funds, already reeling from years of inadequate contributions, took another financial hit when Mayor Richard Daley's administration and the city's unions agreed to require workers to take unpaid furlough days, according to a report released Tuesday by Chicago's inspector general's office.

Under the agreement, city workers were not required to make more than $11 million in pension contributions for the furlough days even though they continued to accrue benefits. The city, meanwhile, gave itself a pass on another $13.5 million in payments for its share of pension contributions for the furlough days, according to the report.

That means city pension funds were shortchanged more than $24 million over the three-year period, at a time when the pension funds had reached historic shortfalls that threaten the retirement security of thousands of police officers, firefighters, teachers and other municipal employees.

Inspector General Joseph Ferguson also called out the city for overstating the amount of taxpayer money saved by the furlough days.

According to a report released by Ferguson's office, when city officials touted budget savings from the furloughs, they failed to account for the $11 million in losses to city pension funds as a result of the decreased employee contributions. That money will eventually have to be paid back by taxpayers and thus shouldn't have been counted as savings.

Taxpayers are on the hook because the state's pension code doesn't calculate benefits based on actual take-home pay but on what is known as appropriated salaries — the salary employees would have earned without the furloughs.

Chicago Budget Director Eugene Munin said in a statement issued late Tuesday that the inspector general's report was inaccurate and that the city, in fact, realized the savings it touted.

"We would encourage the inspector general to support the mayor's proposed legislation that would more equitably [spread out] the pension funds liability by requiring increased contributions from the employees," Munin said.

Daley officials and union leaders amended their collective bargaining agreement in July 2009, requiring thousands of city workers to take 24 unpaid days off a year for three years. Daley said the move would result in about $134 million in savings at a time when the economic downturn was hammering city finances, while avoiding layoffs.

"At the very time other cities are raising taxes and cutting basic services, Chicago isn't," Daley said when the plan was announced.

Although the city has realized substantial savings from the furloughs, its continued use of public pension funds to plug holes in its operating budgets is helping to create a looming budget crisis, critics argue.

"It's another bright line highlighting the disconnect between what these programs cost and what is contributed by both the city and its employees," said Laurence Msall, president of the Civic Federation. "The city has taken a very short-term perspective on its financial condition, and that will undoubtedly make it harder on the next mayor and City Council."

In November, the Tribune reported on how similar deals struck between the city and its public unions cost the city's ailing pension funds more than $3.6 billion. A month later, the state Legislature passed a law requiring the city to adequately fund its fire and police pensions, which had fallen to dangerously low funding levels. The mayor decried the move, saying it would result in the largest property tax increase in city history.

The inspector general's report also highlights growing concerns over how pension fund shortfalls play into the city's larger financial woes.

"As the city tackles its daunting structural deficit, it's important the full impact of those efforts are accurately calculated and fully disclosed to the public," Ferguson said. "This is especially true for the furlough program and to the city's already alarmingly underfunded employee pension funds."

Tribune reporter Hal Dardick contributed to this report.

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