Pensions eat up growing portion of city's property tax revenue

Pensions eat up growing portion of city of Decatur's property tax revenue

Kenneth Lowe
Decatur Herald-Review
December 5, 2010

DECATUR - As the Decatur City Council prepares to convene Monday to discuss setting its portion of the local property tax levy, the largest burden on those revenues - funding the pensions of police, firefighters and city employees - remains a persistent and growing challenge.

City Manager Ryan McCrady and Finance Director Ron Neufeld highlighted some telling statistics in the city's attempts to maintain its pension funds over the last decade.

"We've been putting in what we're required to put in, but the unfunded liability keeps growing," McCrady said.

The council will discuss how it will meet the obligations before it. Council members have clearly expressed a desire to move forward without raising the levy.

In 2001, about 30 percent of the city's property tax levy went into paying down the pensions of its retired police and firefighters. In 2011, 70 percent of it will go toward pensions, even as recent years have seen cuts to other services that draw their funds from the same source, including the Decatur Public Library.

This year the library eliminated the Bookmobiles in the face of cuts exacted upon it by the city council.

Despite such austerity, costs continue to rise due to increasing unfunded liability, caused by higher-than-expected costs that must be paid off at a mandated minimum rate. According to city data, Decatur faced about $10 million in unfunded liabilities to its police and fire pension systems. In fiscal year 2011, the city's unfunded liabilities for police and fire pensions are expected to total about $80 million.

The state legislature sets all of the rules for pension contributions, and over the years it has mandated that municipalities make ever increasing payments. The result, McCrady said, has been a higher and higher cost for the city.

Recent pension reforms that passed the General Assembly and await the Gov. Pat Quinn's signature could provide long-term relief, McCrady said, but in the short term, city staff and the council have to figure out how to meet their obligations in a fiscal climate that leaves little breathing room.

"It's to the point now where taxpayers can't sustain a property tax levy to the point where we can fund these out of the property taxes," McCrady said. "We're starting to draw from other operations to pay for these obligations."

In recent years, the city council has taken money out of funds intended to commemorate the bicentennial of Abraham Lincoln and the city's construction fund, as well as the general fund, to pay for pensions.

Adam Ruderman, president of the Decatur Fire Department's employee union, said he hopes municipalities will be held accountable to making more than just minimum payments to police and fire pensions. Despite some perceptions that such pensions are "extravagant," Ruderman said after health insurance costs, many firefighters are left with about $2,500 a month for the rest of their lives.

Ruderman said solutions won't be easy or quick.

"It would be extremely biased for me to say, 'They should raise the tax levy by 15 percent,' because you can't fix it overnight," Ruderman said. "I would not advocate that. I think some people we expected to be responsible decision-makers have made very poor decisions."

Despite the difficulties, Neufeld pointed out the money in the pension funds themselves has steadily grown and isn't in danger of running out. Continually making ever-increasing payments, however, is causing the burden to overshadow other essential city services, McCrady said.

McCrady said employees rightfully deserve their hard-won pensions and also have been making larger and larger contributions to their plans at the same time the city has, but the solution might be something local government can't handle.

"Governments can't sustain pension programs," McCrady said. "Private industry has gotten out of the pension business, and the best long-term solution is for government to get out of the pension business."

This is a nationwide problem. Public sector employee pension plans, often made outrageously generous (with taxpayers money) by public sector union bosses, are slowly sucking our cities and states under.

dblboggie wrote:This is a nationwide problem. Public sector employee pension plans, often made outrageously generous (with taxpayers money) by public sector union bosses, are slowly sucking our cities and states under.

Then it's more bailouts by the fed via the states. More money that we don't actually have going in the shitter.