Illinois’ pension squeeze hits Lake Zurich

Lake Zurich is struggling under the weight of growing pension costs.

Illinois’ $111 billion unfunded pension liability for its state-run pension funds has earned national media attention. But Illinois is home to another pension crisis that all too often flies under the radar. Rapidly rising pension costs are also suffocating hundreds of municipalities across the state.

There are nearly 650 downstate municipal pension funds for police and fire departments in Illinois. Compared to the state-run pension plans, many of these funds are faring just as poorly. Often times, they’re even worse off.

The village of Lake Zurich, Illinois, is a recent example of a local government struggling under the weight of its growing pension costs. City officials voted this week 5-0 in favor of a proposed budget for the upcoming fiscal year, according to the Daily Herald. But the village’s budget document outlines clear concerns related to its local pension funds:

“The Village’s contribution to police and fire pensions has dramatically increased over the past several years. Just a short six years ago (FY 2009) the Village’s police and fire pension contributions were $600K. In FY 2016, contributions for police and fire pensions are projected to be $3.35M. Facing a 2044 requirement for police and fire pensions to be fully (100%) funded, our police and fire pensions currently are 45% and 54% funded respectively.”

Whether they realize it or not, taxpayers in Lake Zurich have a lot of experience with the impact of rising pension costs. Taxpayers contributed $1.2 million to the police, fire and municipal pension funds in 2009. Since then, total taxpayer contributions have increased by more than 200 percent, exceeding $3.6 million in 2014.

Despite making those increased pension payments, the village’s unfunded pension debt for its police and fire pension funds has increased by 45 percent since 2008 – to $40 million from $27 million.

Today, Lake Zurich’s fire pension fund has just 55 cents for every dollar it should have in the bank to pay for future benefits. The police fund, just 46 cents.

Local officials across Illinois are struggling to keep up with their quickly growing pension costs. Some communities are hiking taxes and fees to help balance their budgets while others are cutting services.

The problem is local governments like Lake Zurich have their hands tied when it comes to pension reform. The Illinois General Assembly sets municipal pension laws – retirement ages, cost-of-living adjustments and benefit formulas – with no regard to whether local budgets or taxpayers can afford them.

It’s time to give local governments more control over their own retirement systems. Local governments should have the option to restructure their local retirement systems in a way that best meets the needs of their budget, taxpayers and public employees. This would help communities like Lake Zurich prevent quickly growing pension costs from consuming an ever-growing chunk of local resources.