Cities, unions differ over pension moves

Cities, unions differ over pension moves

DANVILLE — For the first time in more than a decade, Danville's annual police and fire pension costs have decreased, while Champaign's and Urbana's are expected to increase again.

Danville will pay $385,540 less this year than last year because of recent changes allowing the cities to stretch their amortization period. Other changes also allow some cities to fund their pensions at 90 percent rather than 100 percent. Cities can choose to take advantage of the changes, or not, but both could result in immediate savings, as in Danville's case.

Champaign and Urbana elected not to lengthen the amortization period or fund at the lower level, and both cities expect their pension costs to increase as usual.

Urbana's police pension contribution this current fiscal year was $1.98 million, and city officials expect it to be $2.18 million next fiscal year. The fire pension was $1.35 million this year and is expected to be $1.49 million next year.

Recent changes also created two tiers in the downstate police and fire pension system with hires after Jan. 1, 2011, receiving reduced benefits, but it will take time for that change to lessen cities' pension costs.

In the meantime, Danville Mayor Scott Eisenhauer and other municipal leaders across the state are lobbying for more savings and want downstate police and fire pensions included in any pension reform that may occur at the state level. Last month, Gov. Pat Quinn proposed state employee pension reforms.

Pension reforms are one of several changes municipal leaders are asking for in their "Save Our Cities" agenda, the Illinois Municipal League's package of specific requests for state legislation that would help cities cut costs, mostly in the area of police and fire. The IML is an association of mayors and village presidents that works on behalf of cities and villages.

Joe McCoy, legislative director for the municipal league, said the changes would ensure that municipalities don't end up with the same financial problems the state has now.

"We don't want to kick the can down the road and come to a crisis situation. We can clearly see our budgets are threatened right now by rising police and fire costs," McCoy said.

But labor leaders like Pat Devaney, president of the Associated Firefighters of Illinois, said that collectively, cities will save millions of dollars this year on police and fire pensions because of the recent changes, whereas the state's pension costs are going up significantly.

The cities' "contribution is going down, so what justification do they have in asking to be included in the statewide bill when they are not experiencing the same effects?" he said.

Sean Smoot, director of the Illinois Police Benevolent and Protective Association, said the recent reforms created a two-tier system with fewer benefits and a higher retirement age, 55, for those hired after Jan. 1, 2011 — Tier II hires. But they will contribute the same percentage of their pay as Tier I workers.

Savings from the recent changes have been almost immediate and will only compound as Tier II workers replace retiring Tier I workers.

"The funds should be on very solid footing and there really is no need for further reform," Smoot said. "I know that the Municipal League may want to piggyback on whatever the General Assembly does, but I don't see that happening."

But Eisenhauer, who is vice president of the municipal league's governing board, said the state needs to continue to reverse increases in benefits and expand the way pension dollars can be invested.

"Don't just look at pension reform for the state," he said, "because those (police and fire pensions) are significant impacts to municipal budgets."

In Danville, the city funds police and fire pensions with property taxes. About $3.3 million, or 50 percent, of the $6.6 million in property tax revenue the city will collect this year will go to police and fire pensions.

Increases in benefits to police and firefighters haven't been the only reason cities' pension costs have increased, Devaney said. He said the Commission on Government Forecasting and Accountability reported a few years ago that other factors included poor market returns on investments, failure of cities to make their pension contributions and poor actuarial assumptions that inflated future investment returns, lowering cities' contributions.

Eisenhauer said he realizes that part of Danville's problem is that many years ago the city did not contribute enough money to the police and fire pensions.

"The last administration made efforts to combat that, as has this administration," he said.

This year, the city will spend $1.4 million in property tax dollars to cover police pension costs and $1.9 million in property tax revenue for fire pension costs. Without the unfunded liability, the city's police pension costs would be $274,000 and fire pensions costs would be $368,000. Without the unfunded liability, the city's tax rate would drop from $1.97 per $100 of assessed value to about $1.35.

McCoy said the recent reforms don't do anything to address the existing unfunded liability many cities are facing.

"So we would very much like to see additional pension reforms that affect existing employees, because that's the only way we can start digging our way out of this hole," said McCoy, adding that they couldn't copy exact reforms that might be applied to state pensions, but IML would like additional reforms that would apply to existing police and fire benefits.

McCoy said he expects IML and the Pension Fairness for Illinois Communities Coalition — a group of local government employers — to introduce a unified proposal for pension reform soon.

Smoot said employer contribution enforcement provisions were included in the recent reforms, preventing cities and villages from underfunding the pensions.

But Eisenhauer maintains that increases in police and fire pension benefits and underperforming investments have also increased the city's police and fire pension costs.

"I can't change the past, so what we can do is commit to fully funding (pensions) as determined by a third-party actuarial, but also fight to change benefit schedules and investment portfolios to have a more immediate impact on reducing pension obligations," he said. "It's probably the No. 1 issue facing municipalities today."

Smoot said the AFI is not opposed to expanding investment power as long as there are safety measures in place to prevent a situation similar to when the Chicago police pension fund invested in a real estate scheme and lost millions. He said the AFI has worked very hard over the years to get pension fund trustee investment education in place to avoid situations like that.