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Pensions make local cities ‘critical’ risks

Budgets feel pressure; expect property tax increases, group says

Pension funds for city retirees in Dixon and Sterling are greatly underfunded, which is the case in many towns in Illinois, according to a new report.

Most of the report’s data, though, comes from 2012. In Dixon’s case, that makes a big difference. Its situation has improved a lot since then, a city official says.

The Illinois Policy Institute, a conservative think tank based in Chicago, looked at the numbers for 114 cities with populations of more than 15,000 in Illinois – a group that includes Dixon and Sterling, but not Rock Falls.

Both Dixon and Sterling scored 51 out of 100 on the institute’s scale, with 100 being ideal. A city that scores less than 59 is at “critical risk” of property tax hikes, cuts to core services, reductions to pension benefits, or all of those measures, the think tank says.

In 2003, Dixon’s score was 79, while Sterling’s was 43, according to the institute. Sterling was the only city to see its situation improve.

Ted Dabrowski, the institute’s vice president of policy, said the numbers show that Sterling’s and Dixon’s funds were in bad shape.

“But neither one screams out like other cities such as Springfield or Peoria, where all the numbers have gone wrong,” he said in a telephone interview.

‘We should be fairly solvent’

Dixon Administrator David Nord said his city’s situation has changed since 2012. Last year, the city received about $40 million – most of it in a settlement with its auditor and its bank, which it claimed should have caught former city Comptroller Rita Crundwell’s thefts, and part of it from the sale of Crundwell’s assets.

“The city took a significant portion of the recovery money to pay off the debt for the pension programs,” said Nord, who started with the city after the settlement. “We should be fairly solvent compared with most communities. The funding levels are back up for years to come.”

Crundwell, he said, wasn’t making the city’s contributions to the pension funds.

In Sterling, the city’s score was lower in 2003 because its Illinois Municipal Retirement Fund account included its hospital, CGH Medical Center, City Administrator Scott Shumard said.

The hospital has since been given a separate account number, which immediately raised the city’s funding ratio to IMRF and the institute’s score for Sterling, he said.

‘The cities have no say’

In 2012, Dixon had 44 active police and fire employees contributing to the pension funds, compared with 52 recipients, the institute’s numbers show. In Sterling, 47 police and fire workers pitched in to the funds, while 48 retirees benefited.

In 2010, according to the institute, Dixon’s fire, police and Illinois Municipal Retirement funds were funded at 61, 69 and 79 percent, respectively. Sterling’s police and fire funds were at 59 percent, while IMRF was at 83 percent.

“If you are only 60 percent funded, you’re missing 40 percent of the money for pensions,” Dabrowski said. “If you don’t fix the problem with some type of retirement reform, you will require more taxpayer contributions.”

The blame, he said, should go to the state government, not local city officials.

“Springfield has handed out bigger benefits over time,” he said. “The cities have no say. They have to pay more. Our purpose is to work with mayors and city managers of all these cities. Everyone is focused on fixing the state’s pension problem, but not the fixing of the cities’ pension problem.”

The average annual cost per household for city pensions was $181 in Dixon and $205 in Sterling, according to the institute.

Taxpayers are forking out more for the increasing bills, Dabrowski said, because employees contribute the same amount every period, unless the law changes, “and it hasn’t changed.”

Shumard, Sterling’s administrator, said a person’s pension is now based on his or her last paycheck.

“The city and employee can be contributing for years to the pension fund based on his/her last check. The officer or firefighter can be promoted, receive the new higher level of pay and retire shortly after,” Shumard said in an email. “The city’s pension fund now pays the retiree based on his/her final check, which is a higher rate than for which the city and employee had been contributing.”

For those hired since 2011, their pensions will be based on their highest 4 years of pay, but they won’t start retiring for a couple of decades, he said.

‘Made up in property taxes’

Late last year, Sterling increased its annual tax levy by 4.99 percent, just under the level that would trigger a public hearing process. The hike was blamed on growing pension costs.

The IMRF, police and fire pensions accounted for more than 40 percent of the city’s property tax levy.

“There is no question that the burden has forced the city to make choices between service and/or personnel cuts and tax increases, particularly since 2008,” Shumard said in the email.

The problem, he said, is that the state sets the terms but cities have the responsibility of funding the plans they design.

“Legislators benefit because it costs them nothing and earns them endorsements and contributions from the union side,” he said.

How local cities rate


2012 score (out of 100): 51

2003 score: 79

Annual taxpayer contribution: $181

Unfunded liability per household: $1,919


2012 score (out of 100): 51

2003 score: 43

Annual taxpayer contribution: $205

Unfunded liability per household: $2,650

Source: Illinois Policy Institute

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