Chicago Suburbs Grapple With Their Own Pension Crisis

Towns across Illinois are paying more and more money into their local pension funds for cops and firefighters, but many are still seeing the financial health of those pensions get worse and worse.

Unions and municipalities fiercely disagree on what caused the crisis - and how state lawmakers should fix it.

On a recent drizzly weekday afternoon, Mt. Prospect Mayor Arlene Juracek climbs into the back seat of an official white village SUV.

She’s guiding a tour of her local pension crisis.

Behind the wheel, Assistant Village Manager Dave Strahl hangs a right down Forest Avenue, on the northern end of this upper middle-class northwest suburb. In a few seconds, he’s slaloming around potholes on a road that’s crumbling, awash in gravel.

“We fell behind in our street maintenance,” Juracek explains, leaning forward from the backseat. “So as your revenue sources are limited and your costs are escalating, you start to make the tradeoffs. ... One of the most escalating costs is the pension costs.”

Even Juracek admits there is not a direct correlation between potholes and pensions.

But mayors around Illinois are complaining of a similar trend: State-mandated local pension contributions for police and firefighters are straining local budgets, threatening to squeeze out money for basic government services. Yet according to a state study from last year, the total projected future debt for suburban and downstate public safety pensions has ballooned at least eight-fold since the early 1990s.

That has mayors warning of deeper service cuts, higher taxes and compromised retirement security for cops and firefighters.

Experts and municipal groups say mayors are even more anxious because, starting next year, a new Illinois law takes effect that will enable the state to intercept tax dollars from towns that don’t pay enough into their police and fire pension funds.

A coalition of nearly 100 towns and municipal groups is finally sitting down with state lawmakers and labor leaders to try to stabilize those pensions. But the group fiercely disagrees with police and fire unions over what caused the underfunding - and how to fix it.

Budget pressures

Illinois has more than 600 individual, locally-controlled pension funds for cops and firefighters outside the city of Chicago. And the trend in Mt. Prospect is similar to that seen in towns and cities across the state, regardless of their size or economy.

The village has seen the health of its local police and fire pension funds steadily decline over the last several years. It’s projected that each will have just more than half of the money it needs to pay out in future retirement benefits, a ratio known as the “unfunded liability.” But all the while, the village’s required police and fire pension payments have nearly quintupled since 1997.

Mayors like Juracek say this puts pressure on local budgets in ways that are beginning to hit residents.

In the suburbs, Elk Grove recently passed a utility tax just to pay for pensions. Downstate Bloomington approved a similar measure late last month.

Officials in Niles say rising pension costs contributed to a recent sales tax hike. And in Fox River Grove, northwest of Chicago, the mayor says he may have to choose between borrowing money to build a new train station, and borrowing money to bolster his police pension fund, which is projected to have just about a quarter of the money it will need to pay retiree benefits in the future.

Mayors around Illinois say the economic recession dealt a large blow to their local pension funds. But they also blame what they call “pension sweeteners” - that is, benefit enhancements passed by state lawmakers, who must approve all changes to pension law.

Many mayors claim the increases are an unfunded mandate, pushed by powerful police and firefighter unions and okayed by Springfield lawmakers.

Longtime suburban Roselle Mayor Gayle Smolinski says state accused lawmakers are often “happy to be the purveyors of largesse at our backs.”

“I don’t have a money tree in the back that I’m saying I just don’t wanna give to you guys,” said Mayor Gayle Smolinski, of suburban Roselle. “I’m talking about real money that’s coming in from my taxpayers, many of them who don’t have pensions anymore.”

The coalition is asking the General Assembly to scale back the three percent compounding annual benefit increases given to downstate cops and firefighters. Lawmakers recently approved similar cutbacks for the state of Illinois’ pension funds, and for Chicago laborers and municipal workers. Unions are suing over the state-level benefit changes, claiming they violate the Illinois constitution.

The coalition also wants to raise the retirement age for downstate and suburban police and firefighters, and make them contribute more toward their pensions out of each paycheck. They would also consolidate the hundreds of local pension funds across Illinois to save money on administrative costs, similar to the way municipal workers’ retirements are structured.

Illinois State Sen. Terry Link, D-Waukegan, has been spearheading talks between municipal groups and police and fire lobbyists.

“Then we’re putting it off a year or better be

fore we can, uh, try to help the problem,” Link said. “So that’s what I’m trying to do right now, is work on some things that can be done without causing, uh, a court case. And then the taxpayers could see some relief immediately.”

‘Not about potholes’

But lobbyists for police and fire pensions in Springfield say mayors have been misleading the public about the nature and cause of the pension problems.

“It’s definitely not about potholes,” said Sean Smoot, a lobbyist with the Police Benevolent and Protective Association of Illinois, which represents downstate police pension funds.

Smoot said the choice these mayors are presenting - cutting basic services or paying public safety pensions - is a false one.

And Smoot rejects the claim that mayors and municipal interest groups had no hand in increasing public safety pension benefits over the years.

“These pensions sweeteners that they like to point to, those didn’t happen without their agreement,” Smoot said. “So, for them to turn around and say...’General Assembly, you put these unfunded mandates on us,’ it’s just simply not true.”

Pat Devaney, with the Associated Fire Fighters of Illinois, maintains retirement benefits didn’t cause this crisis.

“But it’s a great talking point for them to stand up at a press conference, deliver, and not accept any responsibility for what’s gone on in their community,” Devaney said.

In fact, Illinois pension benefits for cops and firefighters outside of Chicago are actually less generous than similar plans across the country, according to an analysis for WBEZ by the non-profit Urban Institute, and Washington, D.C. think tank.

That’s largely because cops and firefighters here do not get Social Security, said Richard W. Johnson, who heads up the institute’s Program on Retirement Policy. Johnson’s analysis found that Illinois’ downstate public safety workers also pay more than average toward their own pensions, though they do not have to pay Social Security taxes.

Instead, Devaney said municipalities shouldn’t be allowed to wriggle out of making their required pension payments. He contends towns have been making artificially low contributions for decades - though they should have anticipated the present problems.

‘We saw it coming’

Rather than “pension sweeteners,” longtime Illinois police and fire pension actuary Art Tepfer said the rapidly rising pension costs that towns are struggling with came about by design.

“This is the way that Illinois retains it’s No. 1 ranking as having the worst-funded pension funds in the country,” said Tepfer, who serves as an actuary to more than 100 downstate and suburban public safety funds in Illinois.

Tepfer points to a 1993 change in state law, when legislators approved a pension funding scheme that functioned similar to an adjustable-rate mortgage: low payments at first, but rapidly rising payments in the future.

“Well, we’re in the future now,” Tepfer said. “This is what’s happened. And that’s why we have a pension crisis. We saw it coming.”

Tepfer said smaller funds are also limited in how much money they can invest in stocks, which limits the amount of money they can make on their investments.

Back on the tour of Mount Prospect, Assistant Village Manager Dave Strahl points out a whopper of a pothole that’s eaten the road to its very foundation.

The longer it goes unfixed, the worse it gets.

Mayor Arlene Juracek leans in from the back seat to say that’s the same reason state lawmakers need to change downstate police and fire pensions - soon.

“If not now, when?” Juracek asks. “You need to start because the problem gets worse every single year. You need to start at some point in time and really get the ball rolling and impress on everybody the urgency of getting a solution.”