A safeguard for the guardians

Elise Foley

Fighting fires is the only job Ron Brumbach has ever had. He has spent the past 30 years as a firefighter in Evanston. When he retires in a few years, he will become one of 280 former firefighters, police officers, widows, or widowers who receive pension from the city of Evanston.

For more than 20 years, the city’s contributions have been barely above the legal minimum. The city is not breaking the law, but some say the minimum is not enough.

“We don’t have a legal obligation, but it is a moral one and part of fiscal responsibility,” resident Jeanne Lindwall said at city budget meeting Saturday. “While we benefitted from past decisions to not have property taxes, it’s time to pay.”

Residents will vote Feb. 5 on a referendum for a $1 increase per $1,000 in real estate transfer taxes. These taxes, which were designed to fund the transfer of deeds but are now being used to gain revenue, would contribute about $800,000 per year to pensions.

As pension debts grow larger each year, so does Evanston’s required contribution. By 2033, the city must fund pensions for all current and upcoming retirees – people like Brumbach. They must also pay for the interest the pension funds lost by not getting their money sooner.

This adds up: The city now owes the Police and Fire Pension Funds $140 million.

Putting off the solution

Problems with pension funds stretch back to the 1980s.

Tim Schoolmaster, president of the Board of Trustees of the Police Pension Fund, said the city spent many years ignoring the pension problem.

“Let’s say you get a bill for $1,000 – you can pay off the whole

amount, or you can pay a minimum amount,” Schoolmaster said. “That’s what the city’s been doing all these years and the finance charges are just eating them alive.”

The Police Pension Fund sued the city in 1987 to try to enforce funding for the pension. Evanston won the case, but the court ordered them to hire an actuary.

A 1993 statute gave the city 40 additional years to pay back the pension money, he said. Payments were set up to be small at the beginning but increase each year.

The city is required to contribute to the pension funds each year, based on calculations by either a state actuary or an actuary hired by the city itself. In the 1990s, Evanston hired its own actuary, who recommended not raising property taxes for a few years. Property taxes are a large contributor to pension funds.

Schoolmaster said part of the problem was the city’s actuary, Ted Windsor, who worked for Evanston until 2006. Windsor was replaced when the city found that he was not an accredited member of the American Society of Pension Professionals and Actuaries, Schoolmaster said.

The city’s calculations assumed that up to 50 percent of firefighters and police officers would continue to work until they were well over 60 years old. But most retire between the age of 50 and 55 – none work past 65 years old, Brumbach said. Those calculations drove the city’s contribution down.

“You certainly don’t want a bunch of old firemen,” he said. “It’s hard work. You want to have a young group of people for breaking down doors and things like that.”

When they hired a new actuarial firm, Gabriel, Roeder, Smith & Company in 2007, the firm calculated the $140 million figure.

Of that, about $42 million is for the police and fire benefits, Schoolmaster said. The remaining $90 million represents the loss in interest the city could have earned if the pensions received payments sooner.

In response to the new figure, the City Manager’s Office announced at a Nov. 19 meeting that the city could only fund about 40 percent of its pensions.

Most municipalities are capable of funding 85 percent of their pensions.

Looking to the future

Police officers and firefighters contribute almost 9.5 percent of their income to their pensions. They do not receive social security, pensions fund retirement and disability.

“(Pension fund payments) are obligations that are made to people who put their life at great risk expecting to be taken care of,” firefighter Jason Hays said.

Neglecting the pension now will make it worse in the future, said Patrick Dylan, president of the Fire Pension Board.

“Every year it gets greater, because if you don’t try to make some headway by putting in more than the minimum contribution, then you’ve lost a whole year of the investment return on that money,” he said.

City Manager Julia Carroll introduced a plan for pension bonds last year to help fix the problem, but the plan didn’t go anywhere, Schoolmaster said. The other solutions are to raise property taxes or to cut services.

“They’re kind of living in denial, because they might have to cut something,” Schoolmaster said. “Everybody likes lots of services, but they don’t like to pay for them.”

Alderman Lionel Jean-Baptiste (2nd) said at Saturday’s budget meeting that to fund the pension, the city would have to raise property taxes to 15 percent and would lose programs for children and mental health.

The city should prioritize its obligations to future police and firefighters, too, Brumbach said. The service workers who would be affected by a pension deficit may not be in the force yet – or even considering it – but he and the other pension boards want to be sure the problem will be solved for them.

“It is a crisis because really the people they’re affecting are the people that are 23, or even the 15-year-old who will become a firefighter,” he said. “They don’t have a voice at City Council.”

Reach Elise Foley at [email protected]