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The City continues to stare at a $158 million unfunded liability in the police and firefighters pension funds, and, like many other municipalities and the State of Illinois itself, continues to seek ways to address it. Under state law the police and firefighters pensions must be fully funded by 2033.
One cause of the enormous shortfall is the expansion of pension benefits (three times since 1995) by state legislators, with the costs for funding them passed along to municipalities. Second, contribution levels recommended by the City’s actuary were based on aggressive assumptions and were not high enough to keep pace with accrued liabilities.
At the Feb. 22 City Council meeting, aldermen authorized the City to join the Pension Fairness for Illinois Coalition, created by the Northwest Municipal Conference, a council of suburban governments of which the City of Evanston is a member. The coalition was formed in response to what it terms “soaring public safety pension costs,” the funding for which has “more than doubled since 1999.”
At the March 8 Council meeting, Pat Devaney, president of Associated Firefighters of Illinois, spoke to the Council to “offer perspective on police and fire pension issues in Illinois.”
While Mayor Elizabeth Tisdahl agreed with his assessment of the problems and that obligations must and will be met, the two disagreed as to the root cause of the problem and proposed solutions.
“The Firefighters Union wholeheartedly joins you in fighting for reform,” said Mr. Devaney, adding that reform negotiations have been in process for about three years. The “sticking point,” he said, is what types of reform are needed.
Citing a study by the Commission on Government Forecasting and Accountability (COGFA), Mr. Devaney said 77 percent of the pension funding gap resulted from causes other than benefit increases. The other causes, he said, were a drop in the financial markets, flawed actuarial assumptions and a simple failure to make mandated contributions. The solution, according to Mr. Devaney, lies in the passage of a new law making its way through the Illinois legislature.
House Bill 5297, Mr. Devaney said, would provide taxpayer relief by extending the date by which pension funds must be fully funded from 2033 to 2040 while providing tools that would operate to “smooth out spikes” in investment returns. The bill would close the loophole that, he said, allows “irresponsible actuarial assumptions regarding market return to result in underfunding.” Finally, he said, the proposed law would provide an enforcement mechanism giving the State Comptroller’s office the authority to force communities to meet their pension-funding obligations, eliminating a community’s ability to take a couple of years off.
While Mayor Tisdahl did not take a position on the proposed legislation, she did take issue with some of what Mr. Delaney said.
“I do believe that adding to benefits has added to costs and as the state legislature adds benefits, costs go up,” Mayor Tisdahl said. “And I believe we need a new system for new hires. I’m afraid that if we continue with the current system, then 20 to 30 years from now we’ll have firefighters who do not get a pension.”
A two-tiered system, under which current union members would continue to contribute to and receive pension benefits while new hires would contribute to a 401(k) type plan, is needed, added the Mayor.
Mr. Devaney did not respond to the Mayor’s two-tiered suggestion. With budgets tight across the state, tensions regarding big-ticket items like pension contributions continue to work their way into nearly every Council and Committee meeting.
The City’s pension fund liability is calculated each year as of March 1, the beginning of the City’s fiscal year. The $158 million figure is as of March 1, 2009; the figures for this year are not yet available.