city-of-evanston-debt-161031

Despite reducing non-pension debt by more than $111 million, the City Evanston still faces a higher total reported debt burden than it did a decade ago.

The primary reason is a gradual effort to be more realistic about the size of the city’s pension obligations.

As reported in a recent presentation to aldermen by the city’s chief financial officer, Marty Lyons, unfunded pension liabilities — mostly for police and firefighters — have grown from $92 million to $218 million, while all other debt has shrunk from $336 million to $224 million.

As the city has ratcheted down the assumed yield from pension investments and made other assumptions more realistic — like life expectancies — the reported pension funding shortfall has more than doubled.

And it still probably understates the total pension liability, since many observers believe the current pension fund rate of return assumption of 6.5 percent could be as much as a full percentage point too high — given state-imposed restrictions on how the public safety pension boards can invest their funds.

The city has gradually increased its payments to the pension funds, and plans to boost the contribution by another $1.65 million in 2017, to a total for the year of $18.25 million. But despite the increases, the reported funding level of the pension funds still hovers at or below the 50 percent mark.

The high debt level raises doubts about the city’s ultimate ability to pay — and that has caused the rating services Fitch and Moody’s to lower the city’s bond rating from its once top-rank position, which in turn increases the interest rate on the debt — placing a further burden on Evanston taxpayers.

The City Council is scheduled to adopt the 2017 city budget next month.

Related story

City delays getting real about pension earning rates (10/11/16)

Bill Smith is the editor and publisher of Evanston Now.

Join the Conversation

5 Comments

  1. Is Evanston prepared for natural disaster ?
    With the way the city wants to spend on everything it can think of [theaters, arts, gifts/loans to business they like, etc] and those it [read city government promising more than it can pay for like pensions] got itself into, has the city ever thought of and prepared for financially if we have a natural disaster ?
    We read each year of communities devastated by things like tornado, hurricanes, major fires that spread, floods. The shore line communities keep saying we just don’t get tornado, but weathermen tell us we could, remember the damage in 2011 and a few years before that and 1985(?). Floods—well we have had some very bad flooding of certain streets and homes—maybe the connections to the Deep Tunnel or something with the gates into the lake in Wilmette; Fire ? I can’t think of a factory in Evanston that would cause an explosion but a major gas line could explode—no exploding with the gas main punctured in 2004(?) but it sure caused a mess in Evanston.
    Granted anyone particular type of event is low probability, but taken together it could only be time. Think of the south east US many years apart from hurricanes or the tornadoes that hit Kansas/Missouri and frequently even Illinois, or a major earthquake which experts say will hit someday [New Madrin Fault].

  2. Context?

    Are these numbers inflation adjusted?  I'd like to see some context here, including inflation, comparison to revenue, budget, etc.  It could be in context we are doing fine, or not.

    1. Adjusting Values for Inflation
      The trend up in unfunded liabilities significantly outpaces inflation; however, that is not the main point because.

      1) Most of the increase is due to the fact that the old pension debt number was based on wildly unrealistic assumptions, and now we only have moderate unrealistic assumptions.

      2) What affects Evanston is the burden on it citizens going forward.

      If we expect the cost of the debt to fall onto households then the debt then the total debt per household is about $15000. Evanston can probably afford this, but it will require some very unpleasant decisions by city council to do so. The big problem is that the county and state are in bad shape as well. Also District 65 is facing financial challenges. The debt of all of these entities is almost certainly more than we can afford. I estimate the debt to be about $50K – $80K per household.

  3. Debt is Debt is Debt
    The good news for City of Evanston residents is that City Council and City officials are fully aware of the growing unfunded pension liabilities.
    The bad news is that the unfunded pension liabilities continue to grow.
    As the article states, City of Evanston unfunded pension liabilities have increased from $92 mm to $218 mm (that includes Police, Fire, and IMRF)
    And the City of Evanston plans to pay $18.25 mm for pensions this year or 7.5% of the budget.

    It’s the unfettered growth of the unfunded pension liability (this is debt owed by Evanston taxpayers) and other debt that is problematic.

    The debt owed by Evanston taxpayers is the sum of :
    1. Local debt (primarily city, schools, and cook county)
    2. State debt
    3. Federal debt
    (i have but one paycheck to give to all taxing bodies)

    Local debt is primarily from City of Evanston and school districts 65 & 202 and cook county and i estimate is about $10,000 per Evanston resident.
    State debt is about $20,000 per Evanston resident.

    Therefore, each and every Evanstonian is liable for about $30,000 of debt or about $70,000 per household. (2.3 residents per household)

    Debt at the Federal level is a different story since the government has the ability to print money, and my calculator can’t handle all the zeroes, but the debt could be over $70,000 per person.

    An important point to emphasize is that each government body generally only discusses their financial situation; debt load, or tax burden, but taxpayers are liable for the total amount. And it doesn’t matter from an economic perspective if the debt or tax bill comes from the Library or the City of Evanston, or it doesn’t matter if our unfunded pension fund for our teachers is held at the State level or local level, Evanston and Illinois residents are still liable. We ultimately owe the money, or we can make our kids and grandkids pay it off.

    When taxpayers have an unfunded obligation, call it what you want, but it’s debt and it must be paid.
    The debt can be on our government’s balance sheet like a bond, or it can be “off balance sheet” like pensions or Other Post Employment
    Benefits (OPEB) like healthcare, but it’s still debt.

    Debt is Debt is Debt

Leave a comment
The goal of our comment policy is to make the comments section a vibrant yet civil space. Treat each other with respect — even the people you disagree with. Whenever possible, provide links to credible documentary evidence to back up your factual claims.

Your email address will not be published.