Dan Petrella
After years of wrangling, the Illinois General Assembly this month passed legislation aimed at fixing the state’s public pension systems, the worst funded in the nation, by reducing benefits for retirees. Blocks away from the Capitol at Springfield city hall, there is no sweeping plan in place to address the capital city’s own underfunded pension plans for retired police officers and firefighters, both of which have seen their unfunded liabilities balloon over the past 25 years during four mayoral administrations.
In the fiscal year that ended in 1988, the city’s police pensions were 74.9 percent funded and firefighter pensions were 91.5 percent funded, according to actuarial reports prepared for the city. Those funding levels fell last fiscal year to 54 percent for police and 45.6 percent for firefighters.
Under a state law that went into effect in 2011, the pension systems must be 90 percent funded by 2040. To meet that requirement, the city has to contribute more money each year to the pension funds, now consuming nearly all of the city’s property tax revenue. The city’s unfunded liability grew by an additional $11 million last year, bringing the total funding gap for both systems to $227.4 million — about $1,944 per resident.
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The challenges facing the city’s pension funds are serious enough that they caught the attention of The Wall Street Journal, which highlighted Springfield this fall as part of a series on the struggles facing municipal budgets across the country.
“It really substantiated the problem,” said Ward 7 Ald. Joe McMenamin, who has been the city council’s most vocal member on pension issues. “Our most influential and respected financial newspaper, possibly in the world, reported that … the city of Springfield was among the worst of the worst as far as budget and pension problems among municipalities.”
Rates too high?
McMenamin, who highlighted pension issues in campaign literature during his 2011 aldermanic bid and even on a billboard on his float in the 2010 Christmas parade and 2011 St. Patrick’s Day parade, has advocated lowering the expect rate of return on pension fund investments, which would require the city to pay more into the system.
The city currently bases its contributions on an expected 7.5 percent rate of return. McMenamin said he believes that expected rate is too high and allows the city to continue shorting its contributions.
“The city has been playing a game of fiction for many years by pretending we’re going to have a greater investment return from our existing set-aside funds,” he said. “It allows the city to falsely underfund our pensions.”
McMenamin has advocated lowering the expect rate of return by 2 percentage points. In addition, he said he’d support a “modest increase” in property taxes and would back the idea of using some revenue from a dining tax that Ward 2 Ald. Gail Simpson has proposed to fund pensions. Drawing on various revenue sources to fund pensions would help “spread the pain,” he said.
He’s also supported freezing wages for city employees, voting against every union contract that’s come before the council during his tenure.
‘Tough choices’
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McCarty said the 7.5 percent expected rate of return on pension fund investments is not only realistic based on actuarial assessments, it’s about as low as the city can afford to go. Reducing it even to 7 percent would require the city to contribute an additional $1 million annually to each of the two funds. That’s $2 million the city couldn’t afford without raising taxes or cutting services, he said.
“We’re not willing to do that,” McCarty said. “We’re not willing to cut the services because, quite honestly, we don’t believe that the people of Springfield would like to see their services cut so that we can put more money into police and fire pensions over and above our annual required contribution.”
Joe McMenamin for Ward 7 