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Evanston Mayor Elizabeth Tisdahl, testifying before a legislative committee in Springfield this morning said she supports Gov. Rauner’s proposal to consolidate the state’s 640 public safety pension funds.

Tisdahl told the House Pension Committee that consolidating those funds into the Illinois Municipal Retirement Fund that serves non-public safety local government workers statewide would lead to higher investment returns that would reduce the burden on taxpayers.

She also suggested in her prepared remarks that the legislature should go further and consolidate the individual pension boards that now govern each community’s fire and police pension plans.

She said stretching out the funding schedule for police and fire pensions could provide short term relief for municipalities — but could raise concerns about accounting best practices and auditing opinions.

She said the Pension Fairness for Illinois Communities Coalition, of which Evanston is a member, hasn’t had the opportunity yet to vet several other reforms proposed by the governor — and said a proposed new “Tier 3” pension level for new hires hasn’t been actuarially tested and may not comply with Social Security requirements.

Tisdahl noted that Evanston has substantially increased its public safety pension contributions over the last several years, raising the estimated funded percentage from 40 percent to nearly 50 percent while adopting more conservative assumptions about expected investment income.

Over the last four years, Tisdahl said, Evanston taxpayers have contributed nearly $59 million to public safey pensions, 38 percent more than required by state law.

Bill Smith is the editor and publisher of Evanston Now.

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3 Comments

  1. Consolidating Pensions
    How does such a consolidation affect Evanston residents? Specifically, I’d like to know if we are currently and have been for several years making higher contributions while another town is not contributing to their pension at as high a rate, do we take on their liability? Need I say more than Germany & Greece? All humor aside, I’d like to understand the impact of such a move on Evanston where we have been making efforts to contribute higher percentages than required for the past several years.

    1. Pension consolidation

      Consolidation would require consolidating both assets and liabilities. The Evanston Police Pension Fund is a good example of why this is not a good idea- the math is currently very easy to do in your head: the Fund might have just reached 50% funding, after decades of lawsuits, City bond downgrades, years of IL Municipal League sponsored "kick the can down the road" funding holidays and other sleight of hand law changes, and the City's failure to make the necessary contributions over many years(The employees never had that luxury-nearly 10% comes out of every paycheck) To their credit, the City has made the full "required" payment (and sometimes more) each year since 2007. Their previous thinking on the topic was modified in part by a lawsuit by the trustees, several City bond downgrades because of poor pension funding, and recent changes in government accounting rules-pension debt used to be shown as a small footnote on the financials-now it must be fully disclosed on the balance sheet. Here's the easy math-The Fund currently has about $100 million in assets, which is professionally managed-in fact, the Fund's 3 and 5 year investment returns net of fees are actually higher than those posted by IMRF, which the Mayor now touts as a way to higher returns. But that $100 million is only half of the money needed to pay the benefits. IMRF is a defined benefit plan that definitely works-it has 96% of the money on hand to pay benefits not because of some magical management plan, but because some genius insisted on mandatory funding legislation when it was founded in 1939 (with Evanston as one of it's five founding members) As for the public safety funds,the City put in just what they felt like, for decades. The $100+ million owed to the Fund by the City (taxpayers) is obviously not invested by the Fund, but is part of the equation. Since that money is not invested, you might think it is earning zero per cent, but you'd be wrong. The magic of compound interest works both ways- That $100+ million is earning NEGATIVE 6.5%, and will continue to earn that rate until it is paid off. This is not a situation you or anyone else can invest your way out of, even if you're Warren Buffet. Keep in mind, none of this money is allocated for future hires-this is what is needed to pay for current employee benefits, which the IL Supremes recently confirmed have to be paid at face value. The current tax levy for the Fund (which you pay through your taxes) consists of 25% for benefits, but 75% to pay the interest on the money that was not contributed when it should have been. If you are angry about this, you should be. Government official theft and fraud seem to go largely unpunished. Were this Fund covered by ERISA regulations, which cover private sector retirement plans, this level of underfunding would have sent scores of aldermen, mayors, and city managers to share space with former Illinois governors in the federal prison system. "Paying what is required" is government speak for the latest piece of legislation that dictates how the mortgage should be paid-they've tried balloon payments, and eternally pushing back the due date for full funding-virtually everything except paying the piper when the public services are rendered. So the question is: how much will that $100 million cost Evanston taxpayers? At the current rate of repayment, a lot. Given that borrowed money will probably never be cheaper than it is now, the City could borrow the $100 million at a lot less than 6.5%, make the full contribution to the Fund, only pay the normal costs going forward, and save the taxpayers a bundle, because the difference between the Fund's returns and loan costs would be several percentage points better than what is being paid now. Any extra contribution reduces the amount the $100 million will ultimately cost, so it's smart to put in whatever can be spared. Naperville recently put an additional $5 million into several of their Funds, reducing some of costs of their unfunded liabilities for their taxpayers. Such a bonding plan(which is not toally without risk, which must be assessed very carefully) might have to wait until some of the other Evanston debt (such as hundreds of $millions in sewer repair bonds) is paid off. That was another "let's let future taxpayers pay for this" project that went on for 70+ years. Other questions to ask: 1)The Police Fund has not missed a payment since it's founding in 1911. Given the current trainwreck in Springfield, and the current Governor's demonstrated acumen in government affairs, why would anyone in their right mind want tamper with something that works, and to hand over the retirement security of their employees to ANYONE even remotely connected with Springfield? 2)Why would Barrington (100%+ funded) or Wilmette (80+%) taxpayers want to assume the liabilities of their spendthrift neighbors, who used rampant credit card spending for decades, only paying the minimum amount each month? 3)Current, not future, taxpayers should pay for government services being rendered now. Different municipalities assign different percentage weights to the amount of money they wish to devote to say, police, or fire, or a library. Pensions are an efficient, proven way to pay deferred salaries to their employees. As an Evanston taxpayer, how would feel about having to pay to assume the direct liabilities of East St. Louis? or Chicago? You (and I) are already on the hook for $billions of Illinois state debt-why would you want to pay more? Timothy Schoolmaster is a 45+ year Evanston resident, taxpayer, and 33 year elected trustee and currently President of the Board of Trustees of the Evanston Police Pension Fund. The views expressed here are his own. 

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