fire-engine-rough-pastelsim

A new report from the Better Government Association says Evanston has among the most poorly funded public safety pension programs in suburban Cook County and highlights other towns that are exploring privatization or consolidation as ways to address their pension problems.

The BGA analysis says Evanston’s firefighter pension fund is the 8th worst funded in the suburbs among funds with more than $1 million in assets. It only has enough money to cover 45 percent of its estimated liabilities.

The city’s police pension fund is the 19th worst funded by the same measure, with only enough funds to cover 46 percent of its estimated liabilities.

The BGA says North Riverside, Chicago Ridge Forest View and McCook are considering privatizing their fire department or buying fire service from a neighboring town as a way of dealing with the pension crisis.

Until now, Lincolnwood has been the only community in the state using a private company to provide fire protection services.

Evanston in recent years has increased pension payments to higher levels than the minimums required and has shifted to less-rosy assumptions about investment returns on its pension contributions.

While the latter move may bring the city more in line with reality, it also has the effect of increasing the estimated pension funding shortfall compared to other communities using more optimistic actuarial assumptions.

Bill Smith is the editor and publisher of Evanston Now.

Join the Conversation

13 Comments

  1. These towns are ahead of the curve

    The entire government union pension system is unsustainable and will only get worse no matter how many more times Democcrats raise our taxes.

    These communities that are consolidating or privatizing fire and sanitation services are ahead of the curve and adequately serving their citizens.

    Evanston's former police and fire chiefs retired a few years back and are eligible to collect 50-75 percent of their final salary with a guaranteed 3 percent annual raise. Both chiefs were hired by neighoring towns in the same full time capacity. So they are collecting their pension and full pay, called double dipping. Lord knows how many government union members get promotions just before their retirement in order to increase pension pay (spiking).

    Most government union campaign donations go to Democrat politicians. So taxpayers will continue to be hit hard until these Democrats are voted out of office.

    1. The Truth

      Al, your just telling it like it is. One hand washing the other until the pension plan is broke. Then you will have a judge order all citizens to pay all they have lift.

  2. Evanston’s pension problems to persist

    The challenges to Evanston's budget highlighted by this report are likely to persist and even get worse over the next several years. One possible outcome is that Evanston taxes will increase and city services will get cut in order to fund the pensions for both Police, Fire and Municipal workers. Cook County and the 5 large State Pension funds are also in dire straights and will also likely require increased funds in the future. Translation – expect higher taxes and lower services.

    While there are many issues to consider, one of the most important factors leading to future pension problems is that future rates of return are likely to be LOWER than the Assumed rates of return. Since pensions are future liabilities, there have been consistent actions taken by politicians across our country to underestimate the true cost of providing defined benefit pensions.

    Read the recent NY Times article highlighting the challenges in NY City :

    http://www.nytimes.com/2014/08/04/nyregion/new-york-city-pension-system-is-strained-by-costs-and-politics.html?_r=0

    When the true cost is underestimated, taxes don't need to be raised as much and tax revenues can be used to fund parks and other services that taxpayers actually can see and benefit from today. Allocating money to pensions doesn't win votes.

    Currently, Evanston's Police & Fire Pension Funds assume a 7% rate of return. The good news is that this is down from 7.5% assumed previously, but over the next 10 + years the return will more likely fall into the 5-6% range. How can this be so low given the historical rates of returns on financial assest? First and most importantly, returns have benefitted from the biggest bull market in bonds that we'll experience in our lifetime. The 10 year bond peaked at over 15% in 1981 and today it is about 2.5%. Mathematically, it is impossible to generate similar returns from bonds over the next 30 years. As rates start to rise, bond investments will actually experience LOSSES!

    2nd the stock market and other assets have been inflated by the Federal Reserve's monetary policy. Valuations based on a number of parameters are "fair" so future normalized returns are likely to converge to historical levels. (the 2013 returns for Evanston pensions should be significantly above the 7% rate due to Fed policy which enabled the S&P 500 to generate a 32.4% return – this type of a return is an outlier and unlikely to be repeated in the near future.)

    So if you assume a 3% return from bonds and a 9% return from stocks and a 50/50 portfolio weighting you get to a 6% expected return. And that number is BEFORE fees. Page 22 from the October 2008 City of Evanston Pension report shows that from 1998-2007, or almost 10 years that the Police & Fire Pension funds reported just over a 6% annualized rate of return (before fees).

    https://www.cityofevanston.org/assets/blue-ribbon-report.pdf

    If the pension funds could just produce a 6%+ annualized rate of return during that time period, it seems likely that the return generated over the next 10 years will be less than this prior time period. 

    The City should file its Actuarial report for 2013 soon. Last year the reports were dated July 3rd.

    Police Fund:http://www.cityofevanston.org/assets/Evanston%20Police%20Valuation%202013.pdf

    Fire Fund:http://www.cityofevanston.org/assets/Evanston%20Fire%20Valuation%202013.pdf

    Remember – the pension challenges confronting taxpayers is the summation of City, County and State pensions – many times articles discussing pensions only address one subset of the pension issue.

     

     

    1. What’s wrong with Social Security Coverage?

      Is there any law that say that State and Municipal workers cannot be covered by Social Security?  The money funding Social Security is collected by the Internal Revenue Service every quarter from the employer who must submit the employees collected contribution and the employers matching contribution. The IRS does not recognize "pension holidays" since that concept is not in its code or regulations (as written by Congress).  To solve all these pension problems, lets get all State & Municipal employees covered under Social Security.

      1. pension woes

        Sorry in advance for being a bit sarcastic, I'm probably going to get bashed.

        S.S  would make some sense but the problem with social security is that our state and federal democrat politicians lose the cash flow directed to them by the unions.  Plus, "managers" of that money lose their "fees", there are just so many, many, other various ways to skim the dues that workers pay.

        Union dues are big business but nobody really cares about the workers.  It's still a classic mafia style protection racket.  Indeed, when govt. claimed to "clean" up the unions, they essentially exempted the unions from ceasing labor racketeering practices, put themselves into a position to benefit from that skim.

        If they actally had worker interest at heart they never would have made such empty and unrealistic promises, diverted funding, and continued pressing the skim unchanged. They realized the average union worker had no clue and would demand no change, the taxpayer would always be on the hook, and all the while the dues cash flow would continue. 

        It's the voters fault, but ultimately it's the fault of union membership for allowing the abuse to continue for decades upon decades.  Allow their union representatives to do nothing more than mouth empty objections on their behalf while they continuing to play the system.  

        I guess that explains why unions see their membership voluntarily leave, dramatically and instantly, when a state moves to right to work, and justly so.

      2. The Core of the Crisis

        You have hit it, and then went the wrong direction. The problem of unfunded pensions is in the employer/state contributions being withheld over the years. Most of the actuarial reports on pensions focus on investment returns and how much retirees will receive. 

        Employee contributions are always on time. they are taken out of the paychecks. Goverment contributions (the unfunded part) are held back to pay for roads, etc. That money would have been invested and grow with the economy (1984 Dow: 1211  yesterday: 16443)

        If we paid the money when it was due… no pension problem. 

        Moving to Social Security would not allow for playing games with the money and throw our employees into an inferior retirement.

        People talk about social security reform – moving people into a system that would invest the funds for more secure and larger future retirement funds. We already have it if we pay our bills.

        1. Lack of pension payments only part of problem

          Yes, it is true that the lack of timely payments (pension holidays) is a major part of the problem. Any and every public official in Evanston City Council and all State Legislators who voted for this should be held accountable for their decisions. But, many politicians have conveniently "retired" from public office and many people have forgotten about their "leadership" on these issues. P.S. Mike Madigan is still serving in Springfield after about 40 years and passing several "pension holidays" at the State level and he's still the Speaker of the House 🙁

          But the lack of pension payments is only part of the problem. If it was the sole problem, why is the Cook County pension system in trouble? Cook County officials will tell you that they have made their pension payments every year but their pension fund is only 54% funded, and has a $6.8 Billion, yes that's Billion, shortfall which is over 2 times Cook County's annual budget.

          http://articles.chicagotribune.com/2014-04-10/news/chi-preckwinkle-pension-plan-cut-benefits-workers-pay-more-20140409_1_county-pension-fund-preckwinkle-pension-changes

          Cook County Commissioner, Bridget Gainer, has been trying to bring attention to these challenges:

          http://www.bridgetgainer.com/pension/

          The fundamental issue is that the cost of providing the Cook County pension is more expensive than politicians are willing to account for and fund. But they want to keep giving these benefits away. Salary increases have exceeded expectations. People are living longer than expected – (that's good news, but you need to properly fund it) Higher salary increases and increased longevity are 2 issues leading to higher costs in addition to the well publicized pension spiking and other abuses that have been reported in the press. 

          The challenges confronting Cook County, State of Illinois, City of Evanston and other public pensions across our country are similar – the "TRUE cost" of providing the defined benefit pension is higher than politicians are willing to account for, and fund. 

          The sad part is that public employees who have spent their careers in public service have been misled, and their plans for a secure retirement are in jeopardy. And your children and grandchildren will one day find out that instead of some nickels and dimes in their piggy bank, they will open it up and find a BIG I.O.U. – they will not be happy.

        2. The real core

          The core of the crisis is that workers accepted empty promises of oversized pensions, well beyond what the average taxpayer will earn, and never questioned the justification, method or probability of those promises being fullfilled.  Union rank and file have never demanded change, even though it's been obvious for decades that the math doesn't work, funded or not.  

          If I don't pay attention to what is happening with my own future retirement funds, I have nobody to blame but myself, there is no other excuse, and I should bear the repercussions for my lack of diligence.

          Some people realized long ago that a sucker was born every minute and it would be very profitable to organize them, extract monthly dues from them, create a basic protection racket.  It's why organized crime infiltrated unions so deeply, why organized crime actively created and organized so many union chapters.  It's pretty endless how to skim those dues and profitably manipulate the leverage, it's a big industry. 

          Organize, then placate the sheep with empty promises they will swallow, without question, hook, line & sinker, it makes for an easier and more efficient fleecing.  Again, I apologize for my cynicism, but we all have been, and still are, being had.

  3. Municipal Pensions

    No pleasure in being reminded of this, but thanks for doing so.  Probably the only workable remedy is to reconsider how much police and fire service we need, especially the former. The immediate following article says "A 24-year-old and 22-year-old were arrested Monday evening on marijuana related charges. "  How much police time did this take?  What's the total cost?  What's the benefit?

     

    1. Benefit

      Possibly getting a couple of potheads or pot pushers off the streets. Even a better benefit, scaring a couple of people into getting their lives in order and stop wasting their lives, time, and money on pot.

  4. A lot more mismanaged than the Pensions!
    I have spoken at council about the city not hiring anymore full time fire fighters and using contractors for 10 to 15% of the force. No discussion. Recently they gave skokie a large amount of OUR tax dollars to repair their fire training facility for us to use, a highly questionable expenditure – the fire chief could not even present a reasonable finanically analysis of the value of this -Recently they did a kitchen upgrade to one of the fire statioin which appeared highly unnecessary, given it already had design applicanes, such as a viking range.
    Mismanagement with little input of our public officials is the norm – go to council and listen to the continue stream of silly statements they make – one of the best – one public official stated he could help pick colors for capital improvements, he had no interest in the budget.

    Finally I keep on saying the water uitility is a bigger mess than the pensions, the reason no one is looking is the police and fire pension have an interest group questioning them, those who will get the pensions,
    after Wally and his freinds sign any new bad contracts and make more unnecessary capital mistakes – the people of Evanston may get it – the potential for water Bills to double is quite real!

  5. Pension Problems

    If the City would stop spending tax dollars on programs for certain residents only and instead concentrate on using the tax dollars solely for City services for all: police, fire, streets, garbage pickup, etc., they might eventually get a much better rating. Why not try it for a decade?

  6. Pension Problems

    If the City would stop spending tax dollars on programs for certain residents only and instead concentrate on using the tax dollars solely for City services for all: police, fire, streets, garbage pickup, etc., they might eventually get a much better rating. Why not try it for a decade?

    Z6YJW

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.