Illinois’ municipal pension shortfall, excluding Chicago, has spiked to more than $12 billion from $1 billion just a decade ago. Municipalities are suffering the consequences. They’re cutting core services, raising taxes and adding new fees to pay for their increasing government-worker pension costs.
The problem is local governments have their hands tied when it comes to pension reform. The Illinois state legislature sets municipal pension laws with no regard to whether the local budget and taxpayers can afford them.
But the village of North Riverside found a way to get around the General Assembly’s road block to pension reform. North Riverside plans to move its entire fire department to a private provider of fire protection services – a private provider with a 401(k)-style retirement plan. The village plans to transfer its 12 firefighters and four lieutenants – and their full salaries – to the same private company that’s been providing the village’s ambulance service for nearly 30 years.
The move to a private provider of fire protection services would reduce the village’s $1.9 million budget deficit by nearly 40 percent. The savings would largely come from the private provider switching the firefighters from the traditional defined-benefit pension plans to 401(k)-style retirement plans going forward.
North Riverside’s reform plan would finally bring more stability to the village’s decade-long budget battle. Since the late 1990s, village leadership decided between making its yearly pension contributions or making a combination of service cuts and tax or fee hikes. The village made virtually no payments to its fire and police pensions in the years 2005-2006 and 2009-2011. The village blames operating deficits and volatile sales-tax revenues – more than 70 percent of village revenues come from commerce fees and sales taxes – for forcing it to short its pension funds.
According to the village, if North Riverside had not reduced its pension contributions, it would have ended 12 of the last 15 budget years with a deficit, some of them quite large.
North Riverside has run out of options and it can’t afford to wait for the state to reform local pension systems. Draining reserves and cutting services will only go so far. Taxes are already pushed to the limit, and a new law taking effect in 2016 allows the state to redirect a municipality’s funds if it fails to pay its required pension contributions.
Contracting fire protection services with a private provider is one of the few sustainable solutions that village officials can act on immediately – without waiting for the state to reform pensions.
This reform would allow North Riverside to maintain its current level of public safety. North Riverside firefighters will be able to keep their current jobs, their salaries will be maintained, their already earned pension benefits will be protected and going forward they’ll be given ownership and control over their own retirement accounts with 401(k)-style contracts through the private provider.
Contracting fire protection services with a private provider will help protect taxpayers from higher taxes and cuts in services to fund ever-increasing pension costs. This reform will help end the cycle of credit downgrades, set the foundation for a positive outlook and spur a North Riverside turnaround.