The City Council decided at its Aug. 9 meeting to accept the assumptions of its actuary, Gabriel Roeder Smith, for its comprehensive annual financial report and for its 2011 tax levy. These assumptions figure into the actuary’s computation of how much the City is required to pay each year (the “actuarially required contribution,” or ARC) into the firefighters and police pension funds. At present the police pension fund is 41.5 percent funded and the firefighters pension fund is 40.2 percent funded. The City’s unfunded liability to the two funds is estimated at $174 million as of March 1 of this year. State law mandates that both pensions be fully funded by 2033.
To arrive at the ARC, said GRS representatives Lance Weiss and Amy Williams in a letter to the City, the actuary relies on certain assumptions about return on investment and salary rate, as examples, that are set by the City and that appear to be reasonable from an actuarial point of view. For the present fiscal year, GRS assumed a 7 percent return on investment and a 5 percent rate of salary increase and calculated for this fiscal year an ARC of $8.8 million for the police pension fund and an ARC of $7.1 million for the firefighters pension fund.
Changes in assumptions are reflected in the changes in the ARC. For example, said Mr. Lyons, a higher assumption on the rate of return, such as 8 percent rather than the 7 percent GRS uses for Evanston, would decrease the ARC, because more money would be expected in that year. A more conservative 6.75 percent assumption on the rate of return would result in a higher ARC.
“We project that we’re not going to get the money,” said Mr. Lyons. “If we projected an 8 percent return on investment, our funding percentage would go up, but we’re not going to get that money, so we’re not going to do it.”
At the July 26 City Council meeting, aldermen requested that City staff provide information about pension-funding levels of comparable municipalities, including the assumptions they used. They also asked for a revised actuarial report showing the impact of changing several key assumptions in the report. Evanston’s funding levels were lower than those of many comparable communities. After reviewing the information, Council members voted 7-2 to accept the original GRS report, with Alderman Donald Wilson, 4th Ward, and Alderman Coleen Burrus, 9th Ward, voting “no.”
Ald. Wilson said, “These numbers and these charts are beyond troubled. We have to do something. People should let their state legislators know [that they should help].”
Ald. Burrus said, “I realize that we won’t lower our [rate-of-return assumption], because that would raise our taxes.”
Mayor Elizabeth Tisdahl added, “Also say, ‘because it doesn’t matter how much we put in,’ because these funds are not sustainable. The system whereby Springfield dictates what should go in has to be reworked from Springfield.”
Earlier in the evening, Evanston resident Jim Young said the problems in the pension funding “didn’t develop overnight, but over several years, several decades. The question is, ‘How can we best deal with this going forward?’” He added, “There is a high probability that changes will come from Springfield in the fall. … Making changes today doesn’t make sense until we see how Springfield’s going to deal with this.” He said he thought legislators could extend the time that the pensions must be fully funded – until the year 2050 or even 2060 – and could suggest that they do not have to be fully funded.