05/11/2010 05:12 am ET | Updated May 25, 2011

Mayor Daley Warns Pension Crisis Will Require 'Controversial' Solutions

Mayor Daley's 32-member pension commission will soon make its recommendations to the city, and the mayor is warning everyone that their solutions to the underfunded pensions may not be pretty.

According to aChicago Sun-Times report:

"I hope it's controversial. It has to be. If it's not controversial, then it's not worth anything," Daley said, acknowledging that "a lot of people will not be happy."

"You can close your eyes. You can wait for another election. It's not gonna go away. These are serious economic problems for taxpayers. ... I've asked the unions [to make sacrifices]. I'm not blaming them. It's everyone's problem. [But] there are solutions out there, and they'd better realize we have to come to some solutions."

Solutions include some provisions that have long been advocated by reformers and opposed by unions. In particular, the mayor is reportedly considering a "two-tier" pension system, where all new hires switch over to a private 401k plan.

Daley is also considering retooling the "double-dipping" practice, whereby government employees retire, collect pension, and are then re-hired, receiving a full salary as well as a pension. "We have to re-look at that, too," Daley said.

Raising the retirement age above 50, another proposal Daley is considering, would help the double-dipping problem, and would also help dig the city out of its deep pension troubles.

The unfunded pension liability in the state of Illinois is the worst in the nation. A recent report suggests that Illinois has set aside less than 50 percent of the money it's promised to its retirees. Anything above 80 percent is considered responsible, according to the Pew Center on the States.

The latest figures from Chicago are, in some cases, much more grim. In December 2008, before the stock market crash, the firefighters' fund was only 38 percent funded. Police pensions were funded at 47 percent, and city employees' at 62 percent.

Such enormous pension liabilities, on the city and state level, will result in lower bond ratings, meaning a harder time borrowing money. Ultimately, higher taxes and less money for public services are also likely, as the government will have to divert funds to pay its retirees or else face furious backlash.

Daley formed the pension commission two years ago to explore solutions to the crisis, and expects to announce their recommendations soon.