CHICAGO—Jumping from city-hall meetings to public-school classrooms in his black SUV, Rahm Emanuel worked to buff his image as the hard-driving mayor of the nation’s third-largest city in the CNN TV series “Chicagoland.” But the biggest challenge he faces as his first term ends isn’t so camera ready.
On the eve of his re-election bid, Mr. Emanuel is confronting one of the nation’s most underfunded municipal pension systems. Pushing him to act is Chicago’s deteriorating credit rating and a growing risk that the retirement funds could run dry. The mayor also has tried to portray himself as an elected official unafraid to tackle tough issues.
So far, Mr. Emanuel, a Democrat, is seeking to raise property taxes by $250 million and shrink retirement benefits for most city workers and retirees. But his administration has months of work ahead as it tries to sell aldermen, state officials, unions and the public on a complex plan that is only starting to take shape.
“As he looks to end his first term, he would not be looking to address issues like this—the answers to which are very unappealing,” Chicago Alderman Patrick O’Connor said.
Elected officials here have long avoided confronting the troubled retirement system for city employees, which has only one-third of what it needs to make good on promised benefits. Hundreds of millions of dollars in new payments—amounting to more than 10% of the city’s $5.1 billion operating budget—are coming due. And while many U.S. cities face underfunded pensions, Chicago was described as an “extreme outlier” by Moody’s Investors Service in a March report.
“The voters did not elect me to think about my political future; they elected me to think about Chicago’s future,” Mr. Emanuel said in a statement.
The mayor, who declined requests for an interview, has faced a tumultuous first term after serving as chief of staff to President Barack Obama.
He has presided over the city during its first teachers’ strike in 25 years, grappled with a surge in the murder rate in 2012, and pushed for the closure of dozens of schools.
The Chicago Teachers Union continues to spar with Mr. Emanuel. “I’m not looking to make anyone’s election year easy at all, especially someone who doesn’t want to make our lives easy,” President Karen Lewis, who is pushing for a state tax on financial transactions to help close the pension shortfalls, said in a speech last week.
Still, no serious challenger has emerged to Mr. Emanuel, who will be seeking a second four-year term in February. A recent telephone poll by the Chicago Sun-Times showed Mr. Emanuel had the support of only 29% of 511 likely voters surveyed.
Mr. Emanuel had nearly $7.4 million in his campaign coffers, according to disclosure forms. In recent months, he has been featured heavily on TV in “Chicagoland,” which chronicles life in the city under a slogan: “A city is only as strong as its leaders.” Emails made public by the Chicago Tribune last month show the mayor’s staff coordinated with producers over its portrayal of Mr. Emanuel.
In the coming months, the mayor’s administration will try to wrap up a plan to stabilize the retirement system for a majority of city workers, while looking to head off $600 million in additional annual payments due to police and fire pension funds.
The mayor scored his biggest victory last month, when state lawmakers agreed to overhaul retirement benefits for city workers and retirees who aren’t part of the police and fire funds. But he still must win support from Gov. Pat Quinn in the coming month and persuade the City Council to approve the property-tax boost this fall to go with the benefit cuts.
The proposed tax increase, when fully phased in, would cost the owner of a $250,000 home an additional $50 a year.
In Chicago, property taxes for homeowners are just below the average for the 50 largest U.S. cities, while taxes on commercial properties rank near the top, according to the Minnesota Center for Fiscal Excellence and the Lincoln Institute of Land Policy. The proposed tax increase here would apply to both types of properties.
Paired with the tax boost are scaled-back benefits. City workers would have to kick in more from their paychecks, and retirees would see their cost-of-living increases shrink. Most of the unions representing workers and retirees accepted the plan, but a few are pushing back, arguing it hits the already small retirement incomes of such employees as school aides and cafeteria workers too hard. Mr. Emanuel has long argued that without changes, the retirement system won’t be there for any retirees.
The pension overhaul is finding support in the business community, including the Commercial Club of Chicago, whose membership includes top officials of corporations, law firms and banks.
“For taking the issues on, we give him really high marks,” said Ty Fahner, president of the club’s civic committee.
Mr. Quinn, a fellow Democrat also facing re-election, hasn’t committed to supporting the legislation, which is connected to the mayor’s plan to raise property taxes.
The tax increase is also drawing criticism from some aldermen, who have final say over it. There is agreement the city needs to start funding its pensions, and a range of ideas are being considered, including a tax on commuters and the possibility of building a major casino downtown.
Even if the tax increase passes, Chicago officials are expected to need even more revenue. Mr. Emanuel hasn’t yet announced his plan to confront the $600 million in additional payments state law requires the city to start paying into the police and fire pension funds starting in 2016. Reaching a deal with those unions is expected to be even tougher.
Tom Ryan, president of Chicago Firefighters Union Local 2, said his members aren’t the cause of the current crisis. “It’s a very difficult situation. We’re willing to work with anyone,” Mr. Ryan said. But he added: “They earned their retirements.”
—Caroline Porter contributed to this article.
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