Council voted to accept a police and fire actuarial pension report that calls for a 2.1% increase in Evanston property taxes in order to fill an $800,000 gap caused by a change in life expectancy actuarial assumptions. No changes were made to the assumed rate of return on pension fund investments, currently 6.5%, even though both funds returned less than that – 3.87% for fire and 5.26% for police.

The total City contributions are slated to be about $8.15 million for the fire plan and $10.24 million for police.

According the memo to Council presented by City CFO Marty Lyons and the pension boards, “Assumption changes are considered periodically to address changes in regulations, changes in the investment market, and/or changes in demographics/experience.” This year, the changes “corrected” assumptions that had “male and female retirees/spouses projected for the same life expectancy…”  As a general rule, according to actuary Jason Franken, women live longer than men.

Without changes to mortality assumptions, according to the memo, the recommended contribution would have been roughly the same as last year, with police decreasing by about $21,000 and fire increasing by about $170,000. With the changes, police increases by about $860,000, fire by about $800,000.

The State of Illinois permits a much lower contribution rate, and if the minimum were followed the combined contribution would be over $6 million less than the amount Council agreed to fund. “The funding policy of the City of Evanston that’s being followed is much more sound than that in the Illinois Code,” said Mr. Franken. Cities that fail to contribute sufficient funds merely kick the problem farther down the road.

Had the City opted to change the return on investment to 6.25% instead of 6.5%, the increase would have been close to $3 million total. Mr. Lyons said that each quarter percent change in the expected return meant an additional $1 million in contributions.

Timothy Schoolmaster of the Police Pension Board, and Deron Dougherty of the fire pension board, both agreed that over the last ten years or so, both funds have returned about 7% per year. Last year’s returns, however, were less than that.

Mr. Schoolmaster said the failure to fully fund pensions all along handicaps returns. “Our numbers have been consistently higher than the IMRF,” he said. “[But] we only have 46% of the pie” to invest, because the police pension fund is funded at about 46.6% level. “The rest [the unfunded portion] is cranking at negative 6.5%.”

Mr. Dougherty urged Council to “take a step back” and recognize the fact that things are improving. “Over the last several years,” he said, “there’s been a really good pairing with pension staff.” The pension underfunding is a problem that took 30 to 35 years to create, and “it’s going to take 30 to 35 years to solve. We are asking for your patience with this.”

Though the problem seems to return every year, said Mr. Dougherty, “Our numbers are in line with reality… we’re one the right path.”

“It’s a very tough fight,” said Mr. Lyons. “And it’s going to be a long, tough fight.”

To meet the recommended funding level, the City proposed a 2.1% increase in the City’s portion of the property taxes, which  will generate an additional $800,000 in property tax revenue.