Thursday, Jan. 26, 2012 01:15 pm
Municipal pensions eat more, but they’re still hungry
Whether the city of Springfield is facing a pension crisis in police and firefighter retirement systems depends on who’s doing the talking.
Mayor Mike Houston and Bill McCarty, director of the city’s budget and management office, say that while pension costs are always a concern, the city is in relatively good shape.
But Ward 7 Ald. Joe McMenamin warns that the city faces fiscal catastrophe if pensions for police and firefighters aren’t reined in.
“It’s a major financial problem,” McMenamin says. “It’s going to get to the point that all the real estate taxes the city collects will go to feeding these pensions, and we’re also going to have to use sales tax.”
McCarty, however, is counting on an economic recovery to bolster the city’s pension funds for police and firefighters, which is now costing the city $17.7 million a year.
“I don’t blame him (McMenamin) for being concerned,” McCarty said. “I think it has to be a concern. I’m more in a wait-and-see-what-happens. The simple fact is, the last few years, everybody has gotten hammered.”
Besides an expected economic recovery, McCarty said that pension reform that took effect last year will prove a big help. Without reforms that included reduced pension benefits for new hires, the city in the coming fiscal year would have to allocate an additional $1.4 million to cover pension costs for police and firefighters, he said. Instead, the city’s costs will drop by $700,000, from $17.7 million to $17 million, he said.
Reckoning day is four years away, when provisions contained in pension reform legislation take effect that allow the state to divert taxes to pension funds that would otherwise go to municipal general funds if actuarial studies show that a city isn’t on target to have pensions 90 percent funded by the year 2040.
Houston doesn’t sound worried.
“I would not anticipate that that would cause any problem for the city of Springfield because I would anticipate that we would be meeting our obligations in terms of funding the police and fire funds,” Houston said.
Much hinges on the economy.
Public contributions to police and fire pensions increased dramatically a few years ago, when the city began figuring its obligation based on a 7.5 percent rate of return, McCarty said; the previous calculation was based on an 8 percent return. McMenamin says that the projected rate of return again needs a downward adjustment to 6 percent over the next four years.
Houston doesn’t see the need. Reducing the projected rate of return by 1 percent, to 6.5 percent, would require another $3.5 million a year in public contributions to the police and fire pensions, he said.
“That would be a significant dollar amount at a time when we’re trying to get our fiscal house in order,” Houston said. “While 7.5 percent is on the high end, it’s still an acceptable number.”
Police and fire pensions remain a concern for the Illinois Municipal League, which says that unfunded pension liability continues to grow in cities across the state despite pension reform.
In 2010, cities in Illinois outside Chicago had less than 55 percent of police pensions funded, even though public contributions to those funds more than doubled since 2004, from $138 million to $284 million, collectively, said Joe McCoy, Municipal League legislative director. Despite the spending increase, the funded portion of pensions decreased by 7 percent, he said.
McCoy said he isn’t optimistic that the legislature will enact further municipal pension reform this year. For one thing, he said, it’s an election year, and politicians are loathe to anger public employee unions. For another, there’s an awareness issue, he said.
“I think if you approach your average legislator, they will realize that the state has a very substantial pension problem but they would say that their local pension system is OK,” McCoy said. “That’s simply not the case.”
Contact Bruce Rushton at firstname.lastname@example.org.