Chicago’s 2025 budget session is on full swing and one item being discussed is whether to defer the advance pension payment. The advance pension payment was first proposed by Mayor Lightfoot during the 2023 budget session. To put it simply, the advance pension payments are money that the City of Chicago puts into its four pension systems that is above what is required by state law. As I wrote about previously, there are several key reasons to put more money into the pension systems than is statutorily required: reducing future payments and/or stabilizing the pension systems’ finances (the pension systems are so underfunded they risk insolvency and have to liquidate assets to manage cash flow).
In 2023, Mayor Lightfoot signed an executive order that dictated that the City would use surpluses from the 2022 and 2023 budgets to make advance pension payments for fiscal years 2024, 2025, and 2026. In other words, the City set aside money in 2022 and 2023 to make payments into the pension systems in future years. (As an aside, I am not sure why it was set-up this way rather than simply depositing the money into the pension systems right away). The policy was viewed favorably by credit rating agencies, leading to upgrades. Not making the advance payments would likely be viewed negatively by credit rating agencies. Also, the money to make the advance payments is a one-time resource, so if the City uses that money on something else in the budget that means it’s using one-time money for recurring spending…meaning it’s only temporarily plugging a budget hole.
Amanda Kass 