Police and fire pensions are costing Moline, Rock Island and East Moline about $11.44 million this year, up from $3.83 million a decade ago.|
The resulting budget problems are common among municipalities all around the state and may result in the legislature making further changes to those pensions in the coming years, as cities try to balance paying for services with obligations to its retirees, according to various state and local officials.
"We are at a point now where ... property taxes are more and more being used almost 100 percent to provide pension payments," said Moline Mayor Don Welvaert.
"We are at the mercy of the state and how they dictate pension funds, how they're funded and to what degree. Everyone else is hurt, because we have to continue to take more and more away from the property tax to pay for the pensions."
As an example, Mayor Welvaert said the city's sanitation fee increased in the last few years because the property taxes used to pay the sanitation fund now pays for pension obligations.
City contributions via property taxes have jumped dramatically through the years.
Moline has seen its police and fire pension obligations increase by $4.8 million per year in the last 10 years; Rock Island's obligation has increased by $2.28 million, and East Moline by $431,363.
Illinois Municipal League spokesman Joe McCoy believes the state will take up more changes on municipal police and fire pensions, on top of those make last year with the Legislature created a new two-tier pension system for police and firefighters.
New hires must work until age 55, rather than 50, to retire, and their pension benefits are computed using average salary during the last eight years rather than a worker' final day's salary. Spousal benefits were reduced, too.
City officials say the new system will help city finances in the long run, but will have no immediate impact. One of the costliest pension obligations now for police and firefighters is a compounded cost of living adjustment (COLA) according to Mr. McCoy.
He said compounded COLAs are carving out more money away from municipal services each year.
"We are urging the General Assembly and the governor to take up police and fire pension reform at the same time or shortly after reforming state pensions for state employees," Mr. McCoy said.
The Teachers' Retirement System, the State Employees' Retirement System, the State Universities Retirement system, the Judges' Retirement System and the General Assembly Retirement System all face demands for reforms that will trim the $83 billion in unfunded obligations they face.
"We certainly hope (police and fire pension reform) comes up in November (veto session), but my best guess is the General Assembly will probably take up reforms for its own pension systems and any remaining systems will be worked on in the spring.
"But, we'll continue to press the General Assembly and the governor to reform pension systems for existing police and firefighters. If we don't do this in a fair and equitable way, you'll see an increasing cannibalization to revenue that normally goes to benefit residents in the community and instead goes to paying legacy pension costs."
Earlier this month, Illinois Sen. President John Cullerton, D-Chicago, said one of the biggest obstacles of state pension reform is tackling the compounded COLAs the five state-funded pensions receive.
James McNamee, president of the Illinois Public Pension Fund Association, said there is a lack of perspective when it comes to police and fire pensions.
"Our careers are shorter in occupation just based on what it is," Mr. McNamee said. "You don't want someone (police officer or firefighter) working past a certain age. The disability rates go through the roof."
As for changes in existing police and firefighter pension benefits, Mr. McNamee said any changes have to be agreed to.
He said police contribute 9.91 percent of their income to their pension; firefighters contribute 9.45 percent. He said retired police and firefighters pay for their health insurance.
"I think they'd (Illinois legislature) love to modify or change them," Mr. McNamee said about existing pensions. "It won't make constitutional muster. That's the big problem.
"We lack so many other things other (pension) systems have. We're already a highly reformed system."
Brian Vyncke, president of the Moline Fire Pension board, acknowledges the frustration with pension obligations, but said there is not a simple answer.
Police and fire pensions do not pay into Social Security, he said. "Part of the reason for this is our careers typically end earlier than what is minimally required to receive Social Security," Mr. Vyncke said. "One of our biggest expenses (as retirees) is paying for our own health insurance.
"A lot are paying 25 percent of their pension checks towards health insurance."
Mr. Vyncke said he feels ownership in the taxpayer's pain.
"Nobody wants to pay higher taxes," he said. "The thing that's disheartening to me is the city (Moline), throughout the years, has lowered the property tax rate, which is a feel-good thing.
"If you knew storm clouds were on the horizon, you'd prepare. They (Moline) kicked the can down the road. Again, if they planned ahead, they could have possibly offset some of these burdens."
Police and firefighter contributions are supplemented by investment income and by city contributions that are set each year by actuaries to insure sufficient funds for current and future obligations.
In practice, that means the poorer the investment income, the more cities have to kick in through property taxes.
Mr. Vyncke said Moline and Rock Island were using artificially high actuarial assumptions on a rate of return. When those assumed rates of return weren't reached, it meant cities would have to contribute more towards pension obligations.
For example, Moline's police pension saw a 2.4 percent rate of return in 2011, 9.23 percent in 2010, 4.3 percent in 2009 and a negative 11.54 percent in 2008.
"Pensions are state mandated, but locally administered," he said. "It fell on the cities as to how they funded those pensions. All those years of consistent under funding compounded the problem."
Rock Island city manager Thomas Thomas said the city tries to absorb rising police and fire pension in its operations.
"As we enter the budget process, we'll include pension expenses along with salaries and look to balance the budget," Mr. Thomas said. "We'll continue to tighten the belt. Rock Island has always been managed fiscally conservative."
Regardless of whether any pension reform takes place at the fall veto session in November or in the spring, pension costs and their impact won't go away anytime soon, Mayor Welvaert said.
"The money isn't there," he said. "To increase taxes and fees is not the answer. The escalation of the pension fund is on such a steep slope, it's unsustainable at this particular level."
State Rep. Rich Morthland, R-Cordova, thinks it's very likely if there is a major move toward state pension reform, municipal pensions will follow.
"Police and fire is as big, in some cases, a bigger burden for cities than the pension burdens on the state," Rep. Morthland said. "We've seen in California how cities are going bankrupt. When the basic tax load of a city goes just to make pension, how are they going to take care of the water, the sewer and moving snow?"
Rep. Morthland said the compounded COLAs will be a sticking point.
"When you hear a 3 percent increase, that sounds small," he said. "But, when it is compounded in a profession where they retire young, police, firefighters, teachers, that adjustment adds a significant increase to the pension later in life."
Rep. Pat Verschoore, D-Milan, said he doesn't foresee any immediate police and fire pension reform on the state level.
"I wouldn't think we would go back after we just redid their pensions a year ago," Rep. Verschoore said. "But who knows? You've got to give the police and firefighters credit. They were the first ones to make adjustments to their pensions.
"They weren't happy with it."
Police and fire pensions:
City of Rock Island contributions to police and fire pensions:
Police active retirees: 58
Fire active retirees: 58
Police average yearly pension: $46,437
Firefighter average yearly pension: $44,519.52
Police average annual salary: $63,378.23
Firefighter average annual salary: $65,678.74
City of Moline contributions to police and fire pensions:
Police active retirees: 77
Fire active retirees: 100
Police average yearly pension: $48,298
Firefighter average yearly pension: $49,561
Police average annual salary: $60,567
Firefighter average annual salary: $52,706
City of East Moline contributions to police and fire pension:
Police active retirees: 58
Fire active retirees: 37
Police average yearly pension: $35,550
Firefighter average yearly pension: $36,900
Police average annual salary: $61,776
Firefighter average annual salary: $64,782
Source: City records from Rock Island, Moline and East Moline