The Evanston City Council set aside more than $12 million in its 2008-09 budget for the police and fire pension funds at Saturday’s budget review meeting to avoid legal trouble that could occur if the city fell behind in contributing to the funds.

How that revenue will be generated, however, is still being debated. The council has until December 2008 to decide how much will come from a property tax increase and how much will come from cutting services, City Manager Julia Carroll said at the meeting.

“The question we have to ask ourselves is what are the council’s priorities?” Carroll said. “Is it more important to lower the tax levy or retain all current services or some combination thereof?”

The council ear-marked the $12 million to ensure the city will meet its “minimum annual required contribution” toward the pension funds, which are $140 million short of their state-mandated goal by the year 2033.

2008-09 will be a “catch-up” year, because the city is behind in its funding of the pensions, Carroll said. After that, the city will only need to contribute about $500,000 per year over the next decade to stay on schedule.

Carroll recommended transferring money from the city’s General Fund to minimize a possible property tax spike. She warned that taking money from the reserve is a financially unhealthy practice, but does not believe it will hurt the city in this instance since the catch-up year is a one-time occurrence.

The council also began individually debating and voting on each of Carroll’s proposed revenue additions to lessen the need for a possible tax increase or General Fund transfer.

The aldermen voted 7-2 to increase the cost of new vehicle stickers from $60 to $75, a measure which is expected to generate $495,000.

In a unanimous vote, the council shot down a proposal to increase parking violation fines.

Ald. Ann Rainey (8th) argued that the city first needs to collect its currently unpaid fines, which might add up to more than $1 million.

The council held discussion regarding a possible increase in the cost of obtaining a business license in Evanston, so that the requirements for obtaining a license could be researched.

During the meeting, corporate counsel Jack Segal spoke about the history of Evanston’s pension problems over the past two decades upon the council’s request. Segal described a failed lawsuit in which the police and firefighter’s pension boards attempted to sue the city for failing to allocate enough money for the funds.

Many officials have blamed the city’s former actuary, Ted Windsor, for miscalculating the amount of money the council should be allocating toward the pension funds.

Segal, however, said the courts examined and upheld Windsor’s assumptions, the actuarial term for financial calculations. He suggested re-examining the current estimates by Gabriel, Roeder, Smith and Company.

“I’m not suggesting in any way that the (new) assumptions are not justifiable,” Segal said. “But it seems to me that we ought to be looking at these assumptions to determine just how valid they are.”

Carroll defended the new assumptions by elucidating the inaccuracies in the previous calculation.

“The actual results were different from the assumptions, which caused us to look at what we were using,” Carroll said.

The first difference was an unexpectedly low return on the money invested in the pension funds, because Windsor used an unreasonably high interest rate. Carroll said Windsor’s estimated 7.5 percent was impossible to achieve due to state restrictions that require a certain amount of the funds to have a fixed rate of return.

Next, Windsor’s calculations use a 3 percent salary progression for police and fire personnel. Carroll said the state-recommended 5.5 percent increase is more accurate, meaning Windsor’s estimates came up short on determining how much money the city would owe each pensioner.

Finally, Carroll argued that Windsor underestimated the amount of years each retiree would draw from the pension funds. She said his assumptions did not consider a 2001 law that allows police and fire and life-safety services department employees to retire at age 50, rather than 55.

“People are retiring earlier and living longer,” she said.

The council’s next budget review meeting will take place immediately after a public hearing regarding the budget at 7 p.m. today at the Evanston Civic Center, 2100 Ridge Ave.

Reach Sean Walsh at [email protected]