Kadner: Suburbs now face a pension crisis
By Phil Kadner firstname.lastname@example.org December 13, 2012 10:48PM
Palos Hills Mayor Jerry Bennett speaks at a press confernce to denounce plans by the General Assembly to create a "stealth tax" and pilfer local budgets causing an increase in taxes and fees in the SOIC press room. Chicago,Ill.Thursday, May 12, 2011 | Brian Jackson~Sun-Times
Updated: January 15, 2013 11:32AM
Suburban governments are facing a pension funding crisis that could drive them into bankruptcy, according to mayors who have banded together to change state laws governing police and fire pension systems.
“Cities and villages will go bankrupt if this does not change,” said Palos Hills Mayor Gerald Bennett, among the mayors who stopped by the SouthtownStar editorial offices this week to sound the alarm.
They contend that while public attention has been focused on the state’s pension crisis, the financial disaster facing municipalities is being ignored.
In addition to Bennett, the mayors who made their case to the SouthtownStar editorial board included Ed Zabrocki of Tinley Park, Eugene Williams of Lynwood and Christopher Canning of Wilmette. They were joined by Ed Paesel, executive director of the South Suburban Mayors and Managers Association, and Mark Fowler, executive director of the Northwest Municipal Conference.
Towns across the state have formed an organization called Pension Fairness for Illinois Communities to draw public attention to the problem and get the Legislature to act.
Ironically, one of the major complaints the municipalities have is that the Legislature sets the rules for police and fire pension systems and local governments have to pay the bill.
Lawmakers are contemplating switching the financial obligation for the downstate and suburban teachers pension system to local school districts, claiming that the state should not have to pay for pension deals negotiated by school boards.
There are 638 pension boards in Illinois that oversee pension funds for police and firefighters. But only a single fund, the Illinois Municipal Retirement Fund, considered the most financially sound in the state, covers all other unionized municipal employees in Illinois.
The mayors contend that under heavy lobbying pressure from police and fire unions, state lawmakers have passed financial mandates on towns to cover those employees’ pension funds without regard to towns’ ability to pay.
For example, in 2004 the state passed a law mandating that the surviving spouse is entitled to 100 percent of the pension benefits of a firefighter, matching a law passed in 2000 to cover spouses of police officers.
The Legislature in previous years passed laws increasing the amount of pension money that children and adopted children of public safety employees were entitled to receive, as well as increasing the minimum pension benefit for retirees.
In 1993, legislators passed an automatic 3 percent cost-of-living adjustment for police pensions, later providing the same benefit to firefighters. That annual increase compounds, meaning that each year the 3 percent is calculated based on the salary from the prior pay raise.
By law, police and firefighters can retire at 75 percent of their salary after 30 years on the job. Thanks to the compounding annual raise, in 10 years a retiree can earn more in annual pay than he did while on the job.
The mayors contend that pension funds that were nearly fully funded 20 years ago declined to 64 percent funded in 2004 and to about 55 percent in 2010.
Meanwhile, the amount municipalities contribute to the pension funds has more than doubled, from $247 million in 2004 to $511 million in 2010.
“We’re faced with a situation where we’re either going to have to cut police and fire departments through attrition,” Fowler said, “or severely cut budgets for essential municipal services.”
The mayors also said a 2010 law creating a two-tiered pension system for police and firefighters gave pension boards the ability to confiscate state tax revenue designated for towns to fully finance police and fire pensions.
“So because we cannot meet our state-mandated pension obligation, the pension funds could grab state revenue-sharing money, making it even more difficult for us to pay our bills,” Bennett said.
To emphasize the inequities in the pension funds, Zabrocki said about 80 percent of Tinley Park’s employees belong to the Illinois Municipal Retirement Fund, but about 80 percent of the village’s cost for employee pensions is allocated to police officers.
Pat Devaney, president of the Associated Firefighters of Illinois, which represents about 15,000 firefighters in 214 locals, said the municipalities are to blame for the situation, not the unions or the Legislature.
“There are fire pension funds that are funded at 100 percent because those municipalities always made the payments that they were required to make,” Devaney said. “The municipalities that played with actuarial figures so they could contribute less to the funds are the ones that are in trouble.”
He said the stock market collapse in 2008 contributed to the problems of many of the pension funds because their investments returned far less than anticipated, but those municipalities that had underfunded their pensions faced far greater difficulty in the aftermath of the Great Recession.
The mayors said they have been unable to get the attention of their legislators, but at least one I spoke with said he’s well aware of the problems.
“We know there are problems with the police and pension funds, but we feel our focus in Springfield has to be on solving the state pension funding crisis first,” state Rep. Bill Cunningham (D-Chicago) said. “After we deal with that, we can focus on the municipalities and their pension crisis.”
The mayors want public safety employees to contribute a little more of their salaries to their pensions, elimination of the compounded cost-of-living raise and extending the minimum retirement age to 55 from 50. They would also like to combine the 638 pension funds into one system, similar to the IMRF.
Devaney, the fire union official, said he would not comment on any of the requests until he saw them in a piece of legislation.
“They can’t even get a bill proposed,” he said. “When they do, we’ll look at it and sit down to negotiate, as we always have.”
Given the pace of state pension reform, I’m not optimistic a solution is coming anytime soon.