EAST MOLINE -- Illinois' pension funding crisis is a growing problem, prompting the Illinois Municipal League, an advocacy group for local municipalities, to urge state legislators to find a solution.
The IML has enlisted mayors across the state to join its call for pension fund reform and consolidation, and it has put forth seven proposals for the Illinois General Assembly to consider.
According to the IML, the state currently has $11.1 billion in unfunded liability, or $1,003 per resident.
Brad Cole, IML executive director, said consolidating downstate pension funds could be the answer. The IML's seven proposals take slightly different approaches to consolidation.
"If we put these funds together in one account -- similar to separate accounts within one bank -- we could have gained $1.7 billion more just in interest dividends if it had been invested in the Illinois Municipal Retirement Fund," Cole said.
In a meeting Tuesday with Dispatch-Argus-QCOnline.com editorial board members, Cole and Moline Mayor Stephanie Acri explained why pension fund consolidation makes sense for the state.
"Every study shows that by consolidating these funds, you can earn at least 200 more percentage points of dividend," Cole said. "The issue is, we are wasting all this money in duplication. We're not earning the kind of money that we should. We've got to do something about all the money we're losing."
Illinois has more than 650 separate downstate municipal public safety pension funds. According to the IML, the math adds up to more than 10 million residents paying the bill for 40,000 pension participants.
"The IML has been working on this issue with the General Assembly and this administration to say, 'Look, we are costing municipalities money.' The only people who pay the bill in any municipality are the taxpayers," Cole said.
"We are trying to resolve the issue of poor returns, not-great management, and create a system that can sustain these funds."
There are 1,298 municipalities in Illinois, Cole said. Those with populations of 5,000 and larger are required to have pension funds if they have police and fire departments.
Unfunded pension liabilities are an ongoing concern for many cities, including Moline. Cole said Moline's fire pension fund is only 33% funded, and the police pension fund is 44% funded.
"That's not uncommon," Cole said. "If the funds do not make the amount of money they are anticipated to make, the actuary sends a bill to the city, and the city has to make up the difference every year. And that is what's been eating our lunch. It's been going up historically.
"We're not getting the investment returns; there are more disability awards being given by the boards, which spikes payments; and the costs have increased because of actuarial changes," Cole said. "For example, the actuaries were using 1970s mortality tables, which said women would die at 70 and men would die at 64. We're living longer than that, so now they are using 2014 mortality tables."
The pension funds are managed by local five-member boards that make decisions on benefit payouts and decide who qualifies for disability payments. Pension boards are made up of two active employees, one retiree and two city employees.
Cole said it doesn't make sense to allow amateur investors to make investment decisions on behalf of retirees.
Acri said in 2012, Moline put $6 million in pension funds. In 2019, the city has budgeted $10 million for pension funding.
Property taxes are often raised as a result of growing pension obligations, taking away funding for other public services.
"It's a dramatic ramp up," Acri said. "How much we're putting in doesn't stop, so eventually you're in a situation where you don't pay for anything else, and it starts collapsing on itself because you can't hire new employees, either.
"You hear from people who are concerned about the plowing of their streets who pay a lot in real estate tax, but they don't understand the nuance of how the real estate tax is invested in the community and in those pensions," Acri said. "It's a very challenging thing. We lose sleep (over) it. It's a matter of navigating it so you're not the first ones to go bankrupt."
According to information provided by Moline Finance Director Kathy Carr, the city assumed dividend returns would be 7% last year. Actual returns were negative 3% for both fire and police funds.
"We lost money," Carr said.
To get the ball rolling on pension consolidation, Gov. J.B. Pritzker has assembled two task forces to look at the issue: the Pension Consolidation Feasibility Taskforce and the Pension Asset Value and Transfer Taskforce.
Cole has been assigned to the Pension Consolidation Feasibility Taskforce, but he spoke Tuesday on behalf of what the IML is trying to accomplish.
Cole said under the IML's consolidation proposals, individual funds would maintain their autonomy, meaning poorly funded plans would not be funded by healthier pension funds. Consolidated funds would be pooled for investment purposes only, similar to how separate accounts are managed by one bank.
Cole said he is hopeful the situation will improve.
"This really is critical," he said. "Time is of the essence. The house of cards is coming down."