Springfield residents on hook for $500 million in local retirement debt – November 28, 2017

Ted Dabrowski

In 2014, I presented to Springfield’s City Council the ominous findings of a pension report I had recently authored. The report warned of increasing stress on Springfield taxpayers due to rising local pension costs. It also warned of worsening work and retirement security for government workers as the local crisis deepened. Springfield ranked 112 out of 114 cities from across Illinois in terms of fiscal health due to pensions.

Springfield residents were already paying a price to make way for rising government worker pension costs. Three library branches had been shuttered and 20 employees cut. At least 24 sworn police officers had been laid off. And residents in neighborhoods with crumbling sidewalks and growing potholes had to wait longer for repairs – the city had 60 fewer public works positions then than it did in 2008.

Unfortunately, the response from local officials to the report wasn’t one of urgency. Instead, the then-mayor of Springfield Mike Houston and most of the city council buried their heads in the sand. They quibbled over numbers – that have since been proven true – to deflect from having to act on the crisis.

Springfield’s situation – and the burden on residents – has only gotten worse since then. Residents need their city officials – beyond just Ald. Joe McMenamin, who has consistently fought for real change – to demand reforms that reduce the city’s growing debt.

Worsening situation for taxpayers and government workers

In 2006, pension costs consumed only 66 percent of the city’s general property taxes. The remainder paid for the city’s libraries and other core government services.

By 2018, pension costs for police and fire will consume every dollar of those property tax revenues. According to a recent article in the SJR: “For the first time, Springfield will be spending more on its fire and police pension payments in the next budget year than it’s expected to collect in property taxes.”

The crowd-out of other services is happening even as taxpayers have significantly upped their contributions into the police and fire pension funds. Taxpayer contributions have grown 140 percent in the last decade, to $19 million from just $8 million in 2005.

Unfortunately, those contributions have failed to make a dent in the city’s pension debts. In fact, police and fire pension shortfalls are actually up 100 percent compared to 2005. In 2016, they exceeded $270 million.

The situation is only worsened when the city’s $98 million in Illinois Municipal Retirement Fund debt and $149 million in retiree health care debts are taken into account. (Note: $45 million of the city’s health care debt is owed by the city’s separate Electric Light & Power Fund.)

Add it all up and city taxpayers are on the hook for $517 million* in local retirement debt. That’s up from approximately $180 million in 2005.

*(The 2016 debt total is based on police and fire debt numbers as reported to the Illinois Department of Insurance for ease of comparison across cities and time. When numbers from Springfield’s 2017 CAFR are summed, the city’s total 2017 retirement debt is a much larger $631 million.)

Work and retirement security falls

Retirement security for public safety and city workers is also worsening despite growing taxpayer contributions.

Today, all three local pension plans are dangerously underfunded. And that’s despite record stock market returns in recent years.

IMRF is just 60 percent funded. The police fund has just 54 percent of what it needs. And the city’s fire fund is the worst off. It has just 45 percent of the money it needs on hand today to make future benefit payouts.

There are several factors that are driving this loss in retirement security. Among them are growing salaries and a falling active worker-to-retiree ratio.

Salaries continue to grow faster than residents can afford. Since 2005, public safety salaries have grown 43 percent. Meanwhile, Springfield private sector earnings have remained stagnant, unable to even keep up with inflation. Inflation was 23 percent between 2005 and 2016, while Springfield household incomes grew just 15 percent.

Paradoxically, these higher salaries are harming workers’ retirement security. Higher salaries mean bigger pensions and bigger pension shortfalls.

In fact, pension benefits have grown at an annual pace of 6 percent each year since 2005, far faster than the city – and by definition residents’ – ability to pay for them.

Retirement security has also fallen as the number of pension beneficiaries has surpassed the number of active workers. With fewer employees contributing into the funds and more retirees drawing benefits, the fund loses money faster than before.

Back in 2000, there were more active workers contributing to the funds than workers receiving benefits. Today, the opposite is true. There are over 507 beneficiaries today compared to just 469 active workers.

The pension situation will only grow worse as the city lays off more workers and others retire. The city has cut the number of active police and fire workers to save on costs, and there are warnings of even more layoffs to come.

Springfield is just one of many struggling cities

Springfield is just one prominent example of how the downstate pension crisis is wreaking havocin communities across the state.

And while Springfield’s situation is bad, things are even worse for residents and public safety workers in many other cities across the state. Over 30 percent of downstate pension funds have less than half the money they need on hand today to pay out future benefits. And more than 25 pension funds are less than 25 percent funded.

For some cities, a move to 401ks and decades of belt tightening might work to stabilize and eventually fix their finances.

But with many public safety funds nearing total insolvency, the days for structural pension reform have probably passed many cities by. For those communities, bankruptcy might be the only option that can both protect retirees and allow cities to reorganize their debts.

Without bankruptcy, many cities will be trapped with an insurmountable debt burden that no resident, rich or poor, will want to stick around and pay for.