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Recent press reports have portrayed the City of Evanston’s pension liabilities and debt levels in a negative light.

While there are clear issues that need to be addressed in both areas, pension liabilities and total City debt are closely monitored and regularly evaluated by the Evanston Mayor, City Council, city staff and by independent agents possessing the required expertise in pension funding and debt evaluation.

Moody’s and Fitch Ratings are nationally recognized rating agencies that provide analysis of municipal credit worthiness. The City of Evanston is ranked at the highest possible credit rating by both firms.

A critical component of this rating is the evaluation of the City’s ability to pay off bonds in a timely manner. It should also be stressed that the City has not entered into large ventures involving risk and large capital commitments, which is a common source of debt troubles for other local governments around the United States.

The City of Evanston’s actual bonded debt from General Obligation Bonds, Revenue Bonds and Illinois Environmental Protection Agency Loans has decreased from $293.6 million in 2003 to $238.0 million at the end of 2011.

During the same time, the Equalized Assessed Value of the City has increased from $1.71 billion to $3.04 billion. In other words, the debt burden from bonds and loans has gone down while property values have increased. In short, Evanston is still a very attractive city in which to live and own property based on land/home value.

In 2007 to 2008, the City of Evanston convened a Blue Ribbon Task Force to study police and firefighter pension concerns and provide the City Council with recommendations to stabilize our local pension funds.

Based on the recommendations of this group and the annual independent recommendation from the actuarial firm hired jointly by the city and the Evanston Police and Fire Pension Boards, the City has steadily increased the funding commitment to these pension funds.

Both funds have increased from an approximate 41% funding level, a few years ago, to above a 45% level presently. The City also funds these pensions using actuarial methods and assumptions that are more conservative than those required by the State of Illinois.

The City has held the line on police and fire staffing levels (no increases for three years) and has controlled salary costs, which are the largest component in determining total pension costs in both pension funds.

Core public safety services have not been sacrificed in accomplishing this funding improvement, which is proven most significantly by the continued decrease in crime rate statistics for the City over the past four years along with the City’s improved Insurance Services Office Public Protection Classification from a ranking of 3 to 2 in 2010 to 2011. This program assesses a community’s ability to suppress fires, and those ratings directly affect property insurance values.

Pension and debt management are long-term issues for the City of Evanston. The City actively supported the Illinois General Assembly’s 2011 pension reform legislation approved for both civilian and police/fire personnel.

While the City of Evanston still has a substantial debt level, this debt is closely managed to ensure that new debt is only utilized for critical capital projects and that, whenever possible, debt funding is provided by non-property tax sources to help keep the total Evanston property tax bill stable.

Martin Lyons is the assistant city manager and chief financial officer for the City of Evanston.

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6 Comments

  1. Look deeper at assumptions

    Remember these were the raters who gave AAA to the mortgage securities that were composed of a lot of bonds that were junk and went into foreclosures.

    Does anyone really believe the Assessed Valuation increase ?  Most property owners know the county valuations went up even after the sale prices went down by 25+ %.  You can inflate numbers if you have the power to keep increasing without cause and make everything look rosy.

    Who really believes the state let alone the city will get control of the pension costs ?  The city will continue to bribe the unions with salary and pension increase—oh they will protest that they are trying to get them under control but when push comes to shove will backdown.

    And who can forget the gifts the Council makes !  How many more of these to come ?

  2. Didn’t these same rating agencies give CDOs and Greece AAA

    Aren't these the same agencies that  gave the housing market CDOs AAA rating and Greece bonds AAA rating-only to downgrade after the public realizes there is a mess-

    and property values have increased?   Are you joking?  If anyone truly believe this, I will sell  my gorgeous house on park place for what I bought it for a few years ago.   I'll even give you a 10% discount.  

    I'd rather hear the truth from Martin Lyons over the positive everything is great rhetoric.    The city is increasing taxes, increasing water rates, and  cutting services.  The city is still in a huge hole for pensions. THe truth could let people become prepared.

  3. City debt

    Yes, keeping close watch, especially on pension debt. One earlier actuary had projected returns at over 8%. It may now be down to 7.5%.

    Had a look at conservative bond yields lately? When and if the state ever gets real and brings rates down to 4% to 5%, then the debt will balloon.

    Unless they are buying Greek and Spanish bonds..

  4. Thanks for adding information to the discussion

    Mr. Lyons,

    Thank you for providing some data into the community discussion regarding city obligations.  Hopefully, Evanston will find a way through its obligations that does not involve filing for bankruptcy.  Getting all of the information out into the disucssion is essential for that.  While I am very pleased that the mayor, city council and staff have focused on the city's pension and debt levels over the past 5 years, I am concerned that I do not hear some key qustions being asked.

    Does the city staff ask its actuarial consultant how the indicated pension liability would change if it used a more recent life table?  The actuarial report I saw from a few years ago used a 1983 table.  Why not used a more recent one?  While it is good that the City of Evanston uses more conservative assumptions than the state requires, how do the assumptions compare to what is used in the private sector?  I would think a pension consulting firm would know this.  If the city used a different set of assumptions regarding mortalityand investment return, what would the pension liability be?  Has anyone asked them?  Have the Q&A been made public?

  5. Paint a pretty picture to mask reality

    I would like to thank Mister Lyons for his input. I wish he would go into more of the negative problems of Evanston's finances. As far as credit rates, I believe those were issued be they bought a parking lot for 2 million dollars. There are a number of other questionable deals they have made recently.

    Much of the bright spots that Mister Lyons has pointed to have been funded by the massive increases in property tax and the doubling and tripling of fees, You can say the this paints a pretty picture for the city but it doesn't do much for the citizens' pocketbook. What happens when the taxpayers no longer have any money to pay for Wally World?

     

  6. Responsible city government

    I was glad to read Mr. Lyons' level-headed review of Evanston's debt situation.  We are lucky to have responsible, dedicated professionals on staff and in our City Council.  They are constantly evaluating revenues and expenditures to improve their financial management. Given the debacle in the credit markets and the nervousness of the rating agencies, we would not have a great credit rating in 2012 if our finances were being badly managed.

    As Mr. Lyons mentioned, the City has retained an actuarial firm that has improved our evaluation of pension obligations, and our current City Council has been stepping up to fund it at the levels recommended by the actuary, even though this is a challenge in the current economic environment.  The situation is not helped at the moment by the necessarily conservative nature of the pension funds; a significant portion of the portfolio must be kept in bonds, whose yields are at extremely low levels.  It is very difficult for the fund itself to contribute the needed level of return.

    Evanston is also a city with a diverse population.  Though some properties produce tax revenues in the 5 figures, we also have large middle and low-income areas which produce much lower revenues for the City.  It is a tribute to our City professional staff and the CIty Council that they are determined to succeed in this very interesting, but challenging environment.  They are constantly looking for ways to improve the community, to increase revenues and contain costs.  

    We are extremely lucky to have a dedicated, creative management team.  Thank you!

     

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