Pension remedies mostly beyond Highland Park’s control
City's pension shortfalls mount
Updated: February 22, 2013 8:38AM
HIGHLAND PARK — The City of Highland Park’s combined pension debt for police, fire and other employees more than doubled between 2007 and 2011, swelling from $26 to $56 million.
So there’s a sense of urgency at City Hall to bring the pension beast under control.
The trouble is, most of the obvious remedies — apart from steep property tax hikes — lie outside the city’s purview.
“My sense is we are looking at an avalanche in the future and the sooner we get out in front of it the better,” said council member David Naftzger, during a Feb. 11 discussion of pension strategies.
Highland Park pension funds, like those everywhere, lost considerable value during the sharp downturn in the stock market of 2008. The reversal was most apparent in the city’s Illinois Municipal Retirement Fund (IMRF) account, which in just one year went from $1.7 million in excess assets to a $7. 2 million shortfall. The fund primarily covers administrative staff, elected officials and public works employees.
Highland Park Finance Director Nikki Winikates attributed the losses to IMRF’s less restrictive rules on investments, which conversely work in the fund’s favor when the markets do well. IMRF actuaries determine how much each local government must contribute annually. The fund is giving municipalities and other local governments time to make up those investment losses; however, that comes with a high rate of interest.
The city’s police and fire pension funds also suffered during the downturn as asset values fell while benefits accrued by workers continued to rise.
The city has no control over retirement ages or the level of pension benefits, though the city does set the salaries and award the pay raises on which those lifetime benefits are based. The city also can’t decide to raise employees’ contributions to their pensions. The percentage of salary is set by the legislature.
Mayor Nancy Rotering reported that the Northwest Municipal Conference has been pushing the General Assembly to enact further public safety pension reforms because the burden on municipalities is “unsustainable”.
However, state legislators have shown little interest in a new round of public safety pension reforms, since it reduced benefits for new hires in late 2010. At the same time, the state pushed off the deadline for achieving 90 percent funding from 2033 to 2040.
Rotering pointed out, for instance, that the ability to retire at age 50 and receive annual 3 percent cost-of-living increases that compound over time has a significant impact on the total cost of pensions.
“It’s just massive,” she said.
In 2004, Highland Park and the Village of Northbrook entered into a highly unusual transaction reportedly aimed at bolstering their police and fire pension funds. Each municipality issued about $16.6 million in general obligation bonds committed for public safety pensions, corresponding to the pension debt at that time. The bonds then were transferred to the other municipality. Highland Park has kept Northbrook’s bond proceeds in its general fund earmarked for pensions.
Winikates suggested that as those bonds are paid off, the city turn the money over to the pension funds to realize a return on the investment.
Currently, city contributions to the pension funds represent a little less than half of its property tax requirements. The city’s contributions are expected to rise steeply in the coming years.
Naftzger asked staff to develop estimates using different assumptions, such as lower pay raises and lower investment returns.
“You don’t have to run every permutation possible,” said Naftzger, who has consistently objected to city compensation practices he felt were overly generous.
For 2013, the City Council will use more conservative assumptions than were used in the past: A 7 percent return on investments and 5.5 percent salary increases. The more conservative the assumptions, the more dollars are required each year from property taxes.