Evanston is at the bottom of the barrel in Illinois when it comes to funding police and fire pensions.

That’s one of the conclusions from a special City Council meeting Monday night at which a city consultant reported on the under-funding of the city’s public safety pension programs.

Evanston has funding just 48 percent of its fire pension obligations, the lowest of 26 communities studied. And it has funded just 52 percent of its police pension obligations, the second lowest of 35 communities studied.

On average the communities studied have funded more than 60 percent of their pension liabilities, and some nearby towns are doing far better than that. Skokie and Winnetka have funded more than 70 percent of their public safety pensions.

The unfunded actuarial accrued liabilities for the two Evanston funds total $98 million — more than the city’s entire annual general fund budget.

The report says the health of the pension funds has been adversely affected by several factors:

  • Increased pension benefits mandated by the state legislature with no funding provided.
  • Increase life expectancy.
  • Poor investment performance from 2000 to 2002 when the stock market declined sharply.
  • State rules that require a high percentage of the funds to be invested in bonds rather than equities. Over the long term equities tend to provide higher investment returns.
  • Generous public safety pension benefits in Illinois, which are among the highest in the nation.
  • Minimal pension contributions by the city.

Technically the city has 26 years under state law to fully fund its pension program, but letting the problem slide could cost the city its Triple-A bond rating and raise costs for all other city borrowing.

City Manager Julia Carroll said the city needs to do further research to pick a funding target that it hopes to achieve over the next five years and then determine the best way to get there.

The city could simply increase property taxes to raise the extra money.

It’s also considering issuing pension obligation bonds. The assumption is that the bonds would carry a lower interest rate than the money they raise would earn in the pension funds, thus reducing the property tax burden. But the bonds add to the city’s long-term debt and could have an adverse impact on its debt rating.

And it’s exploring pension obligation certificates which would allow the city to invest funds outside the pension funds, and hopefully get a higher rate of return from more aggressive investment choices than the funds are allowed to make.

Ms. Carroll said she hopes to have a final set of recommendations ready for presentation at a special City Council meeting early in September.

Bill Smith is the editor and publisher of Evanston Now.

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1 Comment

  1. Lets stop kidding the public the council created the short fall
    The short fall has been increasing – It was about $15 million dollars in 1992. Today it is $100 million. The city has under funded it. Why? Lets not kid anyone. Our city council has wasted millions on many programs and too many employees that add not value to our tax dollars. Recently we added a youth coordinator, sustainabilty coordinator and emergency manager position at the cost of $150,000 plus they just were not needed. If you add up all the waste for years the pension fund could have been funded. How much have the wasted on studying the Civic Center -$500,000 plus! It may cost about $4 million a year to borrow the money long term. The council can do this but needs to cut some more from the budget – lets start by elminating the housing coordinator position and the affordable housing programs, a pet project of certain council members. We will still need to raise taxes for this mess – but we can clearly funded some of it from the nonsense programs here.

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