A long-awaited report on Evanston’s $145 million pension deficit provides no definitive answer for the cause of the fund’s collapse and endorses no specific course of action.
“We could have gotten more specific, but it’s certainly not our job to make specific recommendations,” said Mark Metz, chairman of the Blue Ribbon Committee investigating the issue. “That’s the job of the elected officials.”
Though a substantial portion of the document, released Monday, is dedicated to an explanation of the pension system, no specific justification for the swelling deficit is provided. The report only states that actuaries underestimated the amount of money they would need to fund pensions because the city’s data was based on assumptions that proved incorrect.
In response to the fund shortfall, the city hired a new actuarial firm, Gabriel Roeder Smith & Company. Though the report does not explicitly blame the original firm for the gap, it mentions that “only time will tell” if the actuary’s projections were incorrect, and that “all of the assumptions used were within the broad range of ‘reasonable’ as defined by industry standards.” A direct reference is made to a “Google search” as reassurance that “unfunded liability is not a new phenomenon for Evanston; it started growing in the 1990s.”
The report states that neither the city council nor the mayor are at fault for the pension shortfall, saying that “these professional and elected officials were being told that the plans were well-funded, the assumptions were reasonable.” The committee speculated that Evanston may not have paid pension fund contributions in a timely manner – or paid them at all. The committee also theorized that assets might have depreciated, leading to a deficit in expected city revenue.
Now that the report has been issued, the city council and other officials will review the findings and discuss options.
The committee was given little direction from the city about its purpose, said members at its final meeting on Oct. 2. Members were still questioning the cause of the crisis despite having completed the report.
“Where were the finance manager and the city manager?” said committee member Peter Morris at the meeting. “Our form of government is strong council, weak mayor.”
Currently, employees contribute about 10 percent of their incomes to their pension fund, to which their employer adds an additional amount. Investments are the third component, which the reports said may have suffered in the current financial climate.
A list of potential solutions is included in the report, such as leasing city properties like parking lots, selling assets and budget cuts. Raising taxes should be “a last resort,” the report said.
The report also discussed changing the pension fund contribution balance to have employees dedicate a larger portion of their salaries, in a plan similar to a 401k. Action in the state legislature could influence how the pension fund is paid, since states mandate certain contribution amounts.
“I think it would be frankly irresponsible to focus on one solution,” Metz said. “It will be paid over a number of years without raising taxes, and it will take some creativity.”
“A very key aspect to fixing the problem is to get legislative change in Springfield. There are an awful lot of towns who are struggling with the same problem,” said Ald. Edmund Moran (6th). Moran added that he had not yet read the document because of a hectic schedule after his retirement announcement Monday, but said he planned to in the next few days.
“The report is a very much appreciated effort by the council,” he said.
Despite several proposed remedies, the report ends on a negative and somewhat inconclusive note, stating that “the recent pension news for Evanston’s residents is not good. Finding the money to make the required contributions will be painful whether it comes from cutting other expenditures, increased revenues or increased real estate taxes.”
Sean Collins Walsh contributed reporting.
