Pensions emerge as hot budget issue

Despite increased contributions, Evanston’s unfunded public safety pension debt has grown by $47 million to $235 million over the last seven years.

And, with a looming state deadline in 2040 to achieve at least 90% funding, funding levels for the fire and police pension programs have barely increased — from an average of 46% funded in 2015 to 52% this year.

With renewed concern about the pension funding issue among some council members, those facts are likely to make public safety pensions one of the hot topics when the City Council holds a public hearing on the 2023 budget Monday evening.

A decade and a half ago a Blue Ribbon Pension Committee reported to the City Council that the pension funding gap had ballooned from $48 million in 1997 to stand at $145 million in 2008.

The committee blamed much of the growth during that time period on assumptions made by the then city actuary that turned out to have been overly optimistic.

The pension plans earned less investment income than forecast. Salaries increased more. Retirees lived longer and retired earlier. More employees became disabled and fewer quit before qualifying for pensions. And, on top of that, the state legislature increased some pension benefits.

In response to the 2008 report, successive City Councils accepted somewhat more conservative actuarial assumptions.

They vowed to increase pensions contributions to more than the minimum level the actuaries said was needed — although they were inconsistent about how big those extra payments would be.

Those changes — coupled with some reforms at the state level in how pension benefits are calculated — have slowed the rate of increase in the pension funding gap.

While the gap nearly tripled from 1997 to 2008, it has increased “only” 62% from 2008 to 2022.

Buoyed by strong pension investment returns in 2021, city staff has proposed a slight reduction in the city public safety pension fund contributions for next year — from $20.7 million to $20.6 million — even though market declines so far in 2022 make it extremely unlikely that the next annual report from the pension actuaries will look anywhere near as good.

Mayor Daniel Biss and Ald. Clare Kelly (1st) have said they see the pension funding shortfall as a critical issue for the 2023 city budget.

Kelly has a personal interest in the issue — since as a long-time teacher at Evanston Township High School she’s the beneficiary of a different financially troubled public pension program.

Biss and Kelly also received contributions from the Evanston Firemans PAC during their 2021 election campaigns. The union also made contributions to two other current council members, Melissa Wynne (3rd) and Bobby Burns (5th).

Kelly has suggested it would take an extra $4.5 million a year in pension contributions from now until 2040 to close the funding gap

But it’s unclear at this point whether there’s a majority on the Council to approve a dramatic increase in pension contributions, which typically are paid for from property taxes.

The Blue Ribbon Pension Committee also warned in 2008 that adding more public safety employees would add to the pension burden.

This year, for the first time in several years, the proposed budget calls for a sizable increase in Fire Department staffing — adding eight firefighters to fully staff the city’s third front-line ambulance.