Pension crisis hits home: Arlington Heights

Whether they realize it or not, taxpayers in Arlington Heights have a lot of experience with the impact of rising 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 Commission on Government Forecasting and Accountability recently rereleased a detailed analysis of police and fire pension systems in Illinois municipalities, including the village of Arlington Heights, a northwest suburb of Chicago with a population of 76,000.

Whether they realize it or not, taxpayers in Arlington Heights have a lot of experience with the impact of rising pension costs. Taxpayers contributed $2.3 million to the police pension fund and $3.1 million to the fire fund in 2009. Since then, total taxpayer contributions have increased by 63 percent.

Despite making those increased pension payments, the village’s unfunded pension debt for its police and fire pension funds increased by 77 percent since 2009 – to $79 million from $45 million.

The Arlington Heights police pension fund has just 72 cents of every dollar it needs in the bank today to meet future pension payments. The Arlington Heights fire fund, just 64 cents.

To the village’s credit, Arlington Heights made a financially responsible decision and lowered the assumed rate of return for its pension funds beginning in fiscal year 2012. Pension funds are often criticized, and rightly so, for using rosy investment assumptions to make their funding look better on paper.

Decreasing the return assumption to 7 percent from 7.5 percent was a step in the right direction for Arlington Heights. Unfortunately, the village has struggled to meet its investment mark many times during the last 5 years. The village’s returns ranged from 0.4 percent to 5.5 percent between 2009 and 2011 while the returns for the fire funds exceeded the assumed rate in both 2012 and 2013.

Increasing pension payments will continue to strain the Arlington Heights budget and its taxpayers. Taxpayers will have to contribute approximately $3.50 into the police and fire pension systems each year for every dollar the police and fire employees contribute.

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

But local governments like Arlington Heights have their hands tied when it comes to pension reform. The Illinois state legislature sets municipal pension laws – retirement ages, cost-of-living adjustments and benefit formulas – with no regard to whether the local budget 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. Local pension control would help communities like Arlington Heights prevent quickly growing pension costs from consuming an ever-growing chunk of local resources.