At an estimated $176 million, the City’s unfunded liabilities to the fire and police pension funds are not as staggering as the pension debt of the State of Illinois. Some City Council members, however, are taking it seriously and considering whether to make the City’s contribution to those pensions funds even greater than recommended by its actuary, Tepfer Consulting Group. Doing so would entail either an increase in the City’s portion of the property tax – about 20 percent of the overall property tax bill – or making deeper cuts into operating expenses.
“It is, I believe, a good goal to try and get the pensions funded [to] at least 50% [of accrued liabilities]” within the next two or three years, said Mayor Elizabeth Tisdahl. Aldermen Coleen Burrus, 9th Ward, Mark Tendam, 6th Ward and Don Wilson, 4th Ward, agreed.
Under current state law, the funds must be fully funded by 2033. Each year the City’s actuary makes a recommendation – the actuarially required contribution, or ARC – about the level of contribution the City should make to each fund in order to meet the funding obligation. That amount covers the current year’s pension obligations and an amount to help offset the unfunded liability.
State requirements allow a fund to use a funding method based upon a “level percentage or payroll,” says an actuarial report prepared by Arthur Tepfer of Tepfer Consulting Group in consultation with the police and fire pension fund managers. The effect of the State’s process, the report continues, is to transfer “the payment of currently earned pensions to future taxpayers” – or, as some have phrased it, kicking the can down the road.
Mr. Tepfer’s proposed ARCs, far beyond the minimum of $10.38 million required by the State of Illinois, are slightly lower than the City’s contributions last year: $14.92 million in 2012, as compared to a recommended $14.24 million in 2013.
At City Council, though, the proposed decrease in ARC appeared to bother several Council members.
“We are not being quite aggressive enough” in funding our pension funds, said Ald. Tendam.
The sentiment expressed on the dais obviously concerned City Manager Wally Bobkiewicz, who is responsible for preparing the City’s budget. He had apparently relied on Mr. Tepfer’s figures in preparing for this year’s budget season.
“I will have to be honest with you – I am a little concerned,” he told the Council. The City might have to prepare layoff notices for City employees if Council wants to fund beyond recommended levels, he said.
The Mayor had other ideas. “I believe it would entail a 1 or 2 percent increase in the property tax,” she said.
“I really think this is a policy question,” said Mr. Bobkiewicz. “Is the funding level recommended by the City’s actuary enough, or do you want to spend more?”
The City increased its portion of the property tax last year by about 5 percent, largely to cover pension costs.
Up for a vote on Monday night was the acceptance of the actuary’s report only, and acceptance passed unanimously. At Mr. Bobkiewicz’s urging, Council set the matter for further discussion on the agenda of its Sept. 18 meeting (scheduled for Tuesday because Monday is Rosh Hashanah). Citizens may know as early as that night whether their taxes are going up, and perhaps by how much.