Evanston aldermen Monday night asked staff for more information about what similar towns are spending on public safety pensions and put off adopting the latest report from the city’s actuarial firm.

The police and fire pension boards have criticized several of the actuary’s assumptions as too optimistic, but the firm, Gabriel Roeder Smith, defends them as being reasonable.

Evanston aldermen Monday night asked staff for more information about what similar towns are spending on public safety pensions and put off adopting the latest report from the city’s actuarial firm.

The police and fire pension boards have criticized several of the actuary’s assumptions as too optimistic, but the firm, Gabriel Roeder Smith, defends them as being reasonable.

Alderman Ann Rainey, 8th Ward, criticized staff for seeking approval of the study Monday night saying, “The council spends months talking about chickens and nudity, and then we’re told that we have to pass something like this in one week.”

“It makes us look like idiots,” Rainey said.

But Alderman Lionel Jean-Baptiste, 2nd Ward, noted that the council first received the actuarial report June 21, so aldermen have had more than a month to study it.

“I’m not sure the council will ever be satisfied with any actuarial report,” Jean-Baptiste added.

Alderman Coleen Burrus, 9th Ward, asked for information on what cities whose pension programs are more fiscally sound than Evanston’s are using as their anticipated investment return.

The new report lowers the estimated return from 7.25 to 7.0 percent. But the pension boards have argued that an estimated return rate between 6.0 and 6.75 percent would be more realistic, given the state’s restrictions on investments by the funds and poor market performance in recent years.

Jean-Baptiste asked that the staff also get information about the percentage of their total budgets the other communities spend on their pensions.

The city’s required fire and police pension contributions have increased by 81 percent over the past five years to nearly $16 million, or more than 8 percent of the city’s total annual spending.

City Manager Wally Bobkiewicz said he’d have staff provide information aldermen requested by the council’s next meeting, Aug. 9.

But he added, “The real issue is how much you want to put into the pensions and what you want to cut from the budget to fund it — or how much you will raise taxes.”

He said it’s impossible to know what the “right” amount is, because actions by the state legislature to change the catch-up date — when municipalities supposedly must fully fund their pensions could change the answer — although it wouldn’t change how much ultimately will be owed.

In addition, he said, the legislature may change pension benefit levels for police and firefighters — at least for new hires — and that would ultimately reduce the total amount owed.

Related link

The pension report and related memos (.pdf)
 

Bill Smith is the editor and publisher of Evanston Now.

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13 Comments

  1. Dream on

     

     Let’s see, the Dow was at 11,000 in 2000 and ten years later it is down 6%.  I don’t think it’s reasonable to figure in any rate of return when real interest rates are negative.

    1. Pension Nightmare

      Let’s see, are you predicting the Dow will be down 6% in 2020? And what does "real interest rates" have to do with calculating the City’s pension obligations and required contributions?

      The article describes it right- the assumed rate of return on pension assets should be lowered, but if the investment return is lower, then the required contributions, i.e. City payments, are higher. What’s the best assumption? Assumptions are no more than guesses. The best I expect out of the Council is to adopt assumptions used by other towns whose pensions plans are not as underfunded as Evanston’s.

      It was overly optimistic assumptions about plan investment returns that helped get Evanston into its present predicament. But Evanston does not have the resources to greatly increase contributions. Stuck between a rock and a hard place.

      Solving Evanston’s pension plan problems will require a number of City adjustments, such as changing assumptions and larger contributions, and adjustments that can only be made at the State level, such as the time allowed to reach full funding and the level of benefits.

      Easy to complain; harder to come up with solutions acceptable to a majority.

      1. Reduce pension or OUTSOURCE everyone

        Considering how bad just about EVERYONE in the Private sevtoir is hurting, maybe instead of saying  …………..

        "but if the investment return is lower, then the required contributions, i.e. City payments, are higher."

        you should be saying ………

        "It’s time to LOWER PENSIONS & BENEFITS .,… since they are WAY too geneorous, unsustainable, and unfair to taxpayers who pay for 80-90% of this "?

        Or perhaps, (and better yet) just OUTSOURCE everyone !

  2. I have a solution to the Pension Problem

    I have a solution to the Pension Problem:

    Bankruptcy

    1. Simple solutions for simple minds

      Only problem with declaring bankruptcy is that it totally wipes out the City’s ability to borrow any money. So, any plan to fund any capital improvements, e.g. an expansion of the water plant to make more money from selling water to other suburbs, becomes next to impossible. I hate to think how bad the roads will become. Those families suffering floods in their basements will just have to grin and bear it- no new storm sewers for them.

      If there was a simple solution, I’m sure it would have been pounced on a long time ago.

      1. For those without simple minds

        Not only would it be difficult for the City to borrow in the future – it would also probably require permission from the State, and the legal costs would be huge.

        Those who have Enquiring Minds, not simple minds,  should read this article  where the Orange County bankruptcy is discussed:

        Bankruptcy also was costly, especially in the short term. Philippe Jorion, author of “Big Bets Gone Bad” about the crisis found that in the first six months alone the county spent $24 million on lawyers and that “real estate values and sales were both down following the bankruptcy; many transactions in progress at the time were canceled.”

        1. Sounds like a good deal to me

          If we only have to pay $24 million in legal fees to get out of $300 million of unfunded liabilities, then that sounds like a heck of a good deal to me.  In addition, all contracts with public employee unions would be renegotiated at substantially lower compensation levels, which would be like the gift that keeps on giving.

          Also- why would we need to get permission from the state in order to declare bankruptcy?  Chapter 9 is a Federal bankruptcy provision.  The state of Illinois has nothing to do with it.  The California public unions are trying to get a bill passed that would require permission from the state before a municipality could declare bankruptcy, but I don’t believe such laws are in place elsewhere, including IL.

      2. No simple solutions

        John,

        You are right.  There are no simple solutions to Evanston’s financial crisis.  However, bankruptcy does not totally wipe out the City’s ability to borrow.  Bankruptcy will make borrowing much more expensive and much more difficult. It will be painful for businesses, residents and employees

        As many independent citizens are recognizing, bankruptcy is almost inevitable.   Evanston has over $300 million in total debt exposure and it is growing.  The real issue is what to do once the bankruptcy occurs.  It is time to reform the failed governance system.  The ward configuration with its quid-pro-quo corruption must be eliminated in favor of a village trustee system.  It is the ward aldermen that drove Evanston into this mess.  Every politically active citizen in Evanston knows the long list of  incompetent decisions made by the ward aldermen including the  failure to properly fund the pensions, the ERI, Julia Carroll and Wally Bobkiewicz.  City services are in far worse shape than they were a year ago.  While Evanston is sinking in debt, the aldermen are debating chickens.  

        The alderman and their supporters have a vested interest in protecting the status quo.  When property values decline by another 25 %, the rage of Evanston homeowners will overcome this self interest.

        I rarely agree with dp witt, but I do believe that every resident of Evanston has a right to express an opinion without personal attack.  I trust you share that value.  

         

         

         

      3. City Borrowing

        Personally, I don’t have a problem with the City not being able to borrow any more money because then at least their spending will be limited by the cash in the bank.  I think the City’s ability to easily float bonds is partly what got us into this mess to begin with.  Bond Issuances provide politicians with a means to spend money recklessly and dump their excesses on future generations.  They don’t get any press because there is no short term pain, however bond issuances act as stealth tax increases because they will eventually need to be paid off with future taxes. 

        I think having a city that actually can only spend money on things it can actually afford would be refreshing and honest.

  3. Assumptions are guesses, but important

    I am glad to see them trying to be realistic.  Several of us on this forum thought the interest rate assumption was too high.  See thread from 2.5 years ago:

    http://evanstonnow.com/government/bill-smith/story/2008/02/23/aggressive-assumptions-blamed-for-crisis#comment-1372

     

     

    Also the life table they used in 2008 was called something like the 1983 Group Annuity table.  If that means that is is based on mortality measured in 1983, then there is most likely a bias since people live longer now than they did back then.  The American Academy of Actuaries puts some life tables on the web which are more current.  I would want to know what the impact would be if Actuary used those rather than the 1983 table.  How does GSB defend using the life table they have chosen vs. alternatives?

    The city manager is correct in that what matters is how much the city council decides to contribute to the pension fund.  To this end they don’t have to agree with the actuarial report, but they should have a sense of the impact of undercontributing vs. overcontributing.  If they put too much money into it it now, then there will be some painful cuts in service and/or tax increases.  That is bad, but if they undercontribute there will be more pain later.  As a taxpayer, I would rather have a little bit of extra cost now to lower the risk of a big cost later. 

  4. Pension Solution

    The solution is to file bankruptcy and then move to a 401k like 90 plus % of private enterprise.  Then assumptions are not needed and will never be wrong.

    1. Why Would the Council Care

        The Council will never go for it.  They can continue to promise the unions anything they want [unaffordable pension—sure, pay raises—of course, just ask and "we will give", approve every hair-brain project [just look at the ‘art’ ?? they installed], get re-elected to satisfy their ego and just move out of Evanston before the _____ hits the fan.   So why should they care—it is always mañana.

         Facing the reality of our situation—not just now but the future—would put them out of business [at least out of office], so of course they will live in Never-Never-Land.

       

  5. Years of service

    Until now, I have strongly advocated for reducing pension formulas for FUTURE years of service for CURRENT (as well as new) workers …… a VERY unpopular position in the eyes of those riding the Civil Servant gravy train.

    I’m about to become even more unpopular with this group, as I now believe the likelihood of this happening (soon enough and with sufficient formula reductions) is so low that a much better direction, and perhaps the ONLY way to avoid the financial disaster bearing down on communities throughout the nation is to OUTSOURCE 90+% of all Civil Servant positions.

    The CRITICAL CRITICAL CRITICAL need is to STOP the further growth of the pension liability from the excessive pension formulas granted EXISTING employees, and the ONLY way to do this quickly and VERY effectively is OUTSOURCING.

     

     

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