Pension issue reaching crises level for Illinois communities

By DENNIS GRUBAUGH
    Metro East is a long way from Harvey, Ill., but the many communities that make up the Mississippi valley have a lot in common with the berg in Cook County.
    Harvey, a town of just more than 25,000, has been called the first domino to fall in the ongoing municipal pension crises. Recently, Harvey, and then nearby North Chicago, had to lay off dozens of public safety employees after the state’s comptroller was required by law to redirect tax revenue owed to the municipalities to underfunded pensions.
    At this writing the issue is being decided by the courts, but I don’t see the situation being resolved soon.
    Towns have been scrambling recently because of a state law passed in 2011. Pension funds that don’t receive their legally required funding may demand the Illinois comptroller intercept their municipality’s tax revenues.
    “There are hundreds of cities across the state that face some sort of effective bankruptcy if they have to start paying their police and fire pension costs,” said Ted Dabrowski, president of Wirepoints, an organization that does deep research into Illinois economic issues. “It’s only a matter of time before the state starts garnishing their tax revenues.”
    One of the biggest concerns of the Illinois Municipal League is pension reform. Combined with the tight state budget and reductions in overall revenue, pension costs have become like a collective noose around the necks of community leaders.
    Locally, the issue is having ramifications. Last month, Alton agreed to sell its wastewater treatment system for $53.8 million to Illinois American Water Co., in part to cope with rising pension costs.
    And, in a joint interview I did a couple of months ago with Belleville Mayor Mark Eckert and Illinois Municipal League Executive Director Brad Cole, they told me pension funding is their No. 1 concern. Smaller towns are having the tougher time because there is no way to generate new money, and there are not many places to cut.
    The League represents the interests of cities and town across the state. Eckert is the current president of the organization.
    Belleville, which is the largest city south of Springfield, has both paid police and fire departments and is more exposed to pension problems than many towns with smaller, or volunteer departments.
    Until a few years ago, Eckert told me, community leaders simply did not effectively address pension funding. Past leaders were more concerned with things like streets and parks.
    You can see where the quandary lies. The people who elect them expect mayors to do things about streets and parks, which are visible elements with clear benefits. Those voters don’t have the same expectation when it comes to pensions. Many people in the community don’t have pensions themselves. And a lot of constituents don’t have any kind of adequately funded retirement plans. That latter point, of course, is a different matter, and no less scary.
    Pensions are funded through property taxes, and no municipality is in a hurry to raise theirs. Occasionally, though, circumstances require it. Belleville raised its tax last year and officials heard about it for months.
    The police and fire unions Eckert deals with each are more than 100 years old. Some people who retired in the late 1970s are still living and drawing pensions. And, society in general is aging.
    Eckert said the city has been funding to the requested, actuarial level for the last 20 years. But it’s still playing catch up. The Police Department is funded in the 50 percent range and the Fire Department, less than that. Under current law, those funds are expected to be 90 percent funded by 2040.
    The Legislature is going to have to cut some kind of a break to municipalities and working with the Illinois Municipal League seems like the smart way to do it. Five alternatives for pension reform have been floated by the Illinois Municipal League to the Legislature. Constitutionally, they would probably pass muster, Cole said, but whether they’d get past the lobbyists is another issue.
    Pensions, unless you’ve got one — or need one — aren’t sexy things. But in the big scheme of life they are important life vests for working men and women. They are the difference between a comfortable old age and a bare existence for those people who are just now entering retirement.
    Dennis Grubaugh is editor and partner of the Illinois Business Journal. He can be reached at dgrubaugh@ibjonline.com or (618) 977-6865.