Mayoral aides explain Chicago's cash flow crunch that triggered partial pension payment

Top mayoral aides assured the City Council on Monday that the full $260 million advance pension payment will be made, and that Mayor Brandon Johnson’s decision to make that payment in two installments to ease a cash flow crunch will not trigger another costly reduction in Chicago’s bond rating.

A financial brain trust that included Budget Director Annette Guzman, Comptroller Michael Belsky and interim Chief Financial Officer Steve Mahr cited several reasons for Johnson’s decision to cut the initial payment in half. Chief among them are the delayed property tax payments from Cook County tied to the long-stalled computerized overhaul of that system by Tyler Technologies.

Chicago’s share of those payments from Cook County have been trickling in slowly and are still roughly $135 million behind. Property tax payments to all four city employee pension funds were also delayed. That forced the city to make advance payments to those funds — to prevent them from losing investment income down the road — by selling off assets to meet obligations.

Further exacerbating the problem is Johnson’s decision to declare a record $1 billion tax increment financing surplus to rescue the Chicago Public Schools and bankroll the new teachers contract.

Craig Slack, chief investment officer for the city treasurer’s office, said the city has been promised the rest of that money by April 1, though he expressed wariness — since several previous deadlines have come and gone.

“The fact that the money is coming in large chunk amounts tells me the system is still broken. There’s not a fix in sight,” Slack told the City Council’s Finance Committee.

The first quarter of the year always includes “big outflows” of cash, including $1.2 billion in payments to the four city employee pension funds required by state law, officials said.

“When you don’t have money coming in and you’re pushing money out to solve [other issues], it’s a problem,” Slack said.

Slack said he has talked to "every one of the executive directors" of all four city employee pension funds — Police, Fire, Laborers and Municipal Employees — to "communicate the timing" of the pension advance.

"The fact that they got half and it's above and beyond — they're thrilled," he said.

"We've been working together collaboratively to create and foster a healthy relationship that's built on communication two-way. So I know that this delay in the advance payment... is not going to affect their investment strategies, their asset allocations, their liquidations to meet benefits in any way shape or form. The one thing that could change that is if the County delays the first-half levy even further."

Guzman said she can only hope Cook County government can “turn it around quickly and not have further delays.”

Finance Chair Pat Dowell (3rd) tried to get a commitment on when the second half of the pension payment would be made.
Mahr refused to be nailed down, adding it depends on when the problems with the Tyler Techologies contract are resolved.

Mahr said he has talked to Wall Street rating agencies about the alternative city budget — minus Johnson’s corporate head tax — muscled through the City Council over the mayor’s objections.

“They didn’t talk about the timing of the advance pension payment. They were more concerned that some of the [revenue] ideas may not materialize,” Mahr said. “We’ve given them reassurance that we are making good on the budget that passed” including the controversial plan to generate $90 million in annual revenue by selling off $1 billion in outstanding city debt.

Belsky said he has “attended several meetings” on the plan to sell advertising, including using virtual reality to put up ads on city buildings and said the Johnson administration is “actively pursuing those revenues.”

Former Finance Chair Scott Waguespack (32nd) led the insurgent group of conservative and moderate Democrats that rejected Johnson's corporate head tax. He was among those who demanded Monday's hearing to determine whether the partial pension payment was part of a broader effort by the mayor to sabotage the alternative budget instead of implementing it.

Waguespack came away convinced that the partial payment was tied to legitimate cash flow concerns.

"I agree with the explanations. The outcome is going to be determined by when they make that second payment," Waguespack said. "What we learned more of is how broken the county system is under [Cook County Board President Toni Preckwinkle]... and the financial impact to the city and CPS."