Alton in negotiations to sell off city sewer system and water treatment plant to pay for pensions

Most of the proceeds from the sale of Alton's sewer system and water treatment plant would go toward combined police and fire pension debt of more than $113 million.

City Council members in Alton, Illinois, have voted to allow negotiations to go forward in selling off the city’s sanitary sewer system and water treatment plant in order to help pay for Alton’s growing pension burden.

Illinois American Water submitted a proposal to buy the plant and sewer system in a Feb. 14 Alton City Council meeting, according to the Alton Telegraph. Aldermen voted 6-1 in favor of a motion to review and consider the proposal.

“It is something we are going to have to do because of other things involved with the city, like the pension [debt obligation] we can’t afford,” said Alderman Charles Brake in the Feb. 14 meeting, according to the Telegraph. “The treatment plant is in bad shape, requiring several million dollars in repairs. This is not something you necessarily want to do, but the city is not in the position to meet the pension obligation in the next several years.”

The Telegraph explained that Alton’s police and fire pension funds have a combined debt of more than $113 million, according to Alton City Comptroller Kirby Ontis, who cited numbers from actuaries with the Illinois Department of Insurance, or DOI.

The DOI recommended Alton pay more than $3.7 million to its fire pension fund and just over $4 million toward its police pension fund starting in April. The recommendation comes as the state is requiring local governments to bring their pension funds up to 90 percent funded by 2040.

But for Alton, this feat will prove very difficult, if not outright impossible. The Alton fire pension fund has less than 31 cents on hand for every dollar owed in future benefits, according to a 2017 DOI report. Alton’s police pension fund is in very poor shape as well, with just over 32 cents on hand for every dollar owed in future benefits.

Both funds remain in poor shape despite increased contributions from taxpayers. From 2012 to 2016, city contributions to the Alton fire pension fund increased nearly 13 percent, but the fund actually ended up worse off, falling to just over 30 percent funded in 2016 from 31.6 percent funded in 2012.

Taxpayer contributions to Alton’s police department pension fund increased more than 18 percent from 2012 to 2016, but its funding level improved by less than 1 percentage point.

The city is also struggling to make new repairs to the treatment plant mandated by the state.

Alton residents are dealing with a difficult prospect that all too many communities are facing across Illinois: sacrificing services to fund massive pension debts.

Meanwhile, property taxes have been going up for Alton taxpayers and residents across Madison County. While the Alton City Council voted to keep its 2017 property tax levy nearly flat in December, the Alton School Board raised its property tax levy nearly 7 percent. A 2015 Illinois Policy Institute study found that between 2000 and an average of years 2009-2013, the average residential property tax burden for Madison County grew by more than 35 percent.

As if is this situation wasn’t bad enough, Alton taxpayers may even see an increase in their water rates, depending on the deal city officials choose.

The long-term solution to this problem for Alton, and other towns dealing with pension troubles, is to transition new city employees to 401(k)-style pension plans. A viable 401(k)-style option already exists at the state-level for university workers. The program started in 1998 and has more than 20,000 university workers enrolled.

While this problem is ultimately Alton’s to deal with, Springfield has severely limited the Alton City Council’s options.

The state mandates towns like Alton create and maintain costly pension funds for its police and professional fire departments. And thanks to the Illinois Constitution’s pension protection clause, once pension benefits have been promised, they cannot legally be “diminished or impaired,” meaning that even modest restructuring of existing pension obligations could run afoul of the courts.

These factors, along with the state mandate to raise local pension funding levels to 90 percent by 2040, have made tough choices inevitable for Alton leaders.

And unless lawmakers make serious reforms, Alton residents will continue to pay more for less.