Pension obligation bonds don’t look like a good solution to Evanston’s public safety pension problem.

That was the tentative conclusion Wednesday of members of the city’s blue ribbon committee studying the city’s pension funding shortfall.

Committee members said the current spread between the interest the city would have to pay on the bonds and the expected return the money would earn from investments by the pension funds isn’t great enough to justify locking in the obligation to pay the bonds.

Committee member Aleksandr Granchalek said the city would probably have to pay 6.125 percent interest on the bonds in today’s market.

The city’s pension actuary has estimated that the pension funds over time will earn 7.25 percent — but actual performance has fallen well short of that level in most recent years.

“My concern is that the spread is very low compared to the risk,” committee member Jim Young said.

Poor earnings results by the funds last year added another $5 million to the city’s $140 million estimated pension funding shortfall in a new report from its pension actuaries.

And while the actuaries decided to stick with the assumption of a 7.25 percent earnings rate, committee member William Testa said that, from comments in the firm’s report, “it’s clear they don’t really feel comfortable about that.”

Committee chair Mark Metz said, “It seems like selling bonds would just shift this debt from one place to another. This arbitrage doesn’t look very good to me.”

Committee member Peter Morris said that while he wouldn’t favor selling pension bonds at the current rates, if the rate spread were larger in the future it might become attractive.

The pension obligation bond solution had been proposed as a possible option by former city finance director Matt Grady before he resigned last year.

The committee members also debated what, if any, other solutions to the pension funding crisis they should recommend.

Member Peter Morris suggested the city needs to try “zero-based budgeting” — examining more closely every aspect of the city’s activities each year rather than its current practice of building each new budget based on continuing what it has done in the past.

He also suggested that the city might be able to stretch out repayment schedules for its existing bond debt and could try to extract higher payments for the water it sells to other municipalities.

Testa suggested that additional development downtown, especially on city-owned parking lots, could generate additional revenue for the city.

Young suggested considering selling or leasing certain city assets, like its parking garages, to raise additional revenue.

Metz said the way the city has been doing business may have to fundamentally change. “They just can’t keep spending money they don’t have. Some things need to be cut,” he said.

But member Gerald Gordon said the city had raised property taxes over 7 percent this year and “there’s been no uproar, no marching on city hall.”

“On the day the budget was passed, hardly anybody was there except those people who wanted to be sure social services weren’t cut and the branch libraries weren’t cut,” Gordon said.

The committee is scheduled to meet again at 7 p.m. on Wednesday, July 23, at the Civic Center.

Bill Smith is the editor and publisher of Evanston Now.

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