Will COVID-19 lead to 'pension intercepts' and cuts to core city services across Illinois?

A new Wirepoints’ analysis of downstate and suburban public safety pension fund data finds that over 200 sponsoring Illinois municipalities failed to meet their obligations to at least one of their public safety pension funds in FY 2019.

The negative impact COVID-19 is having on local finances will likely prompt those same cities and more to continue to short their contributions, putting them at risk of having their revenues garnished by the state comptroller as part of Illinois’ “pension intercept” law.

The intercept law, passed in 2011, grants local public safety pension funds the power to demand that the state comptroller garnish a municipality’s tax revenues so they can be handed over to the pension fund. Since its implementation, the intercept law has been used to garnish funds from three of the most economically depressed cities in the state: Harvey, North Chicago and most recently, East St. Louis.

The current economic downturn could bring a number of Illinois cities and pension funds down to near-insolvent levels like Harvey. In FY 2019, the latest full year of Illinois Department of Insurance (DOI) data available, nearly a third of Illinois’ public safety funds were already less than 50 percent funded, with two dozen less than a quarter-funded.

Without pension reform, more cities will be forced to choose between funding their pensions and paying their active workers.

Cities need their police officers and their firefighters. But protecting retirement security for public safety workers is also critical. State politicians created this crisis, and they have the power to pass major pension reforms that could help municipalities’ cope. Unfortunately, none of them are willing to take a stand and push for a pension amendment.

Until they do, core services will continue to suffer.

Some of the facts covered in Wirepoints’ report include:

• 351 of Illinois’ 643 local public safety pension funds did not receive full contributions from their sponsoring governments in FY 2019, the latest year of full data from the Illinois Department of Insurance. 
• On average, shorted pension funds received an employer contribution that was 20 percent smaller than their DOI-calculated required contribution.
• In dollar terms, contribution shortfalls ranged from just a few dollars to over $4 million each for Rockford’s police and firefighter funds.
• Illinois’ local pension crisis was worsening before the COVID-19 pandemic. Total local pension debts tripled between 2005 and 2018 to more than $13 billion. A third of the state’s 643 local pensions were 50 percent funded or less in 2018.
• Ballooning pension promises created the local pension crisis. Between 1987 and 2019, total police and firefighter pension benefits owed (accrued liabilities) have grown by over 1,000 percent. In comparison, the state’s economy has only grown 278 percent.
• Average downstate and suburban public safety salaries in Illinois have grown 58 percent between 2005 and 2018, to nearly $90,000. That’s more than double the growth of ordinary Illinoisans’ earnings, up just 25 percent over the period.

The intercept law is not a solution to the state’s local pension crisis. It’s a zero-sum game – simply moving limited local revenues from payroll to pensions fixes nothing and ends up harming active workers and those dependent on city services.

Read “Will COVID-19 lead to 'pension intercepts' and cuts to core city services across Illinois?” in full at Wirepoints.org.