Chicago Mayor Rahm Emanuel unveiled a plan on Wednesday that he called "an honest approach" to save the city's biggest retirement system from insolvency with a water and sewer tax to be phased in over five years starting in 2017.
The municipal retirement system, which covers about 71,000 current and former city workers, is projected to run out of money within 10 years as it sinks under an unfunded liability of $18.6 billion.
The new tax would generate $56 million in its first year and increase to $239 million annually by 2020, the mayor's office said.
"Today, one of the big question marks that hung around the city because of past decisions — or past decisions that were not made — we have addressed," Emanuel told an investor conference in Chicago.
"Every one of the city's pensions has a dedicated revenue stream ... to keep the promise not only to the employees, but to the city's future and do it in a way that does not undermine the economic well-being of the city," he said.
The plan would require approval by Chicago's city council, which Emanuel said he intends to seek in September. Chicago then needs the Illinois legislature to approve a five-year phase-in of the city's contribution to the pension system to attain a 90 percent funding level by 2057.
The tax comes on top of an increase in water and sewer rates between 2012 and 2015 to generate money to repair and replace aging infrastructure. Revenue rose from $644.1 million in 2011 to $1.125 billion in 2015.
The rescue plan for the municipal system follows previous action by the city to boost funding for police and fire pensions through a phased-in $543 million property tax increase, and its laborers' system through a hike in a telephone surcharge.
Chicago's big pension burden was a driving factor in the downgrade of the city's credit rating last year to the "junk" level of 'Ba1' by Moody's Investors Service. Standard & Poor's warned in June it may cut the city's 'BBB-plus' rating in the absence of a comprehensive pension fix.
The task of fixing the city's pensions became harder after the Illinois Supreme Court in March threw out a 2014 state law that reduced benefits and increased city and worker contributions to the municipal and laborers' funds.