[July 09, 2013]Each month when Chuck Conzo,
city treasurer, presents his statement of monthly revenues to the
Lincoln aldermen, there is a listing of funds accumulated for the
police and fire pension plans.
The figures look somewhat impressive: over $5 million in the
firemen's fund and over $9 million in the police fund. Yet, a
comment is sometimes made that the pension funds are not "fully
funded," and that is a concern for Conzo.
In past meetings, the
city's newest alderman, Bruce Carmitchel, has also said it is a
concern that the city needs to address.
What ends up being the confusing part of the story for some is
the fact that when the two men are speaking of the pensions not
being fully funded, they are not referring to those two pools of
invested cash. They are referring to the annual expenditures from
the pension funds. The city is not earning enough cash each year to
cover the payments.
The "unfunded" portion of the expenditures is being paid from
those big pools, and in the foreseeable future, if things don't
change, those big pools could be depleted. But, that won't happen
any time soon, and if solutions are found, it won't happen at all.
Another driving force behind getting the revenues to meet the
expenditures each year is a law that has been put into place by the
state of Illinois requiring that by the year 2024 all municipal
pension plans be fully funded.
So in order to understand this, one must first understand what
"fully funded" is. Recently Conzo sat down to try to explain what
the situation is and what can be done to improve it.
Often at budget time, the city talks about "designated funds" and
"general obligation" funds. A designated fund means that though the
money belongs to the city of Lincoln, it can be used only for one
purpose. So even if the money is in the bank and an unforeseen
emergency occurs, because the emergency is not within the rules of
the designated funds, that money cannot be used.
Over the years, the city has chosen to designate certain revenue
streams, at least in part, to funding the pension plans. One example
is the cost-of-living adjustment, or COLA, that the city receives on
property taxes. Each year, the city estimates what its increased
share of taxes will be and designates that money to go into the
pension funding for the current year.
Conzo said that for the fiscal year that ended in April, the
revenues going toward the firemen's pension payments consisted of
$388,375.65 from property tax, $663.74 from housing authority tax,
$48,067.20 from personal property replacement tax, $99,468.05 from
payroll deductions, and $37,525.82 from interest earned on
investments through the Illinois funds, money markets and local
certificates of deposit. This came to a grand total of $574,300.48
in money collected for the fund.
However, the money paid out to a total of 25 recipients totaled
$980,713.78. In addition, fees were paid out for training and travel
directly related to the pension plans, professional fees for
services rendered and a small amount categorized as miscellaneous
fees. This brought the grand total on the expenditure side to
$994,630.59.
The result is that the money collected specifically to pay the
year's pensions fell short by $420,330.13.
Conzo explained that in order to "balance" revenues to
expenditures, the city had to draw $413,673.28 from that big pool of
investment cash this year. He explained that the reason the $413,673
doesn't match up with the $420,330 is that there was some interest
earned that didn't deplete the balance in the investment pool.
But comparing apples to apples, the firemen's pension investment
accounts totaled $5,840,845.76 on April 30, 2012, and one year later
that balance had dropped to $5,512,923.07; the result of having the
current year's obligations not fully funded.
When Conzo has talked about this in the council, he has noted to
the aldermen that the pension plan for the firefighters is only
38.64 percent funded. The city is "designating" from its revenues
only 38.64 percent of what it takes each year to pay the current
year's expenses in the pension fund.
This is what the state says has to change by 2024. In other
words, the city has to figure out how to designate just short of $1
million a year from its annual budget for the firemen's pension
payouts.
In addition, that roughly $1 million figure is not a stable
figure; it can change. Currently, there are 25 firefighters or their
survivors drawing from the pension plan and 19 firefighters paying
into it.
Between now and 2024, those numbers could change. Firefighters
can retire; they can also become injured and be forced to retire due
to health concerns; or, though we don't want to see it happen,
someone could lose their life, and a widow or children would be
entitled to survivor benefits. So, the 25 drawing now could
increase. At the same time, it is unlikely that the city will have
more than 19 firefighters on their roll call in the foreseeable
future, so the number of employees paying into that fund more than
likely won't increase.
Of the two retirement funds, fire and police, fire is visibly in
worse condition than the police fund. At the end of April, the big
pool of invested cash for the police fund contained $9,299,266.25
and actually increased over the figure from the prior year, which
was $9,008,443.80.
In the fiscal year that ended in April, the designated funds for
the police pension payouts included $434,547.80 in property taxes,
$742.27 in housing authority tax, $53,481.60 from the personal
property replacement tax, $139,085.91 through payroll deductions and
$10,857.04 in interest earned, for a grand total of $638,714.62.
For the year, payments made to a total of 31 retirees and
survivors totaled $1,053,888.55. Another $16,575.68 was expended for
professional services and miscellaneous expenditures, bringing the
total cash paid out to $1,070,464.23.
Conzo said that in this fund, the city fell short of being able
to earn the current year's obligation by a total of $431,749.61.
This equates to the pension being 51.87 percent funded.
And, for the city to become compliant with state law by 2024,
they are going to have to come up with a means of setting aside
slightly more than $1 million per year, based on the current number
of people drawing pensions, which as stated earlier, will more than
likely change over the years, thus increasing the amount that needs
to go strictly to the pension fund each year.
With all factors remaining the same, the investment pools for
each fund will cover the shortfalls for the next few years, but they
are not the solution to the problem.
So, how can the city solve this problem? That is a question that
Conzo doesn't have a complete answer for yet, but he does have a
couple of ideas.
This year is the first full year that the city is going to
benefit from the video gambling revenues. The laws regarding video
gambling changed three years ago. The state initiated new policies,
deciding to regulate the machines and allow them to pay out real
cash. The state designated a portion of the profits from the
machines to go to the municipalities where they are being operated.
Cities had the option of allowing the new gaming systems or
prohibiting them. For the city of Lincoln, it did become a
controversial issue in council chambers, as many came to speak to
aldermen in favor of the machines, and an equal number came to speak
out against them.
In the end, the city decided to allow them. They did this not so
much for the revenues the machines would bring into city coffers, as
for the benefit of the business owners who said that without the
machines, they would suffer losses as customers left town to go
where they could gamble.
However, Conzo said regardless of why it was done, the city is
going to benefit by an estimated $60,000 this year. He said now is
the time to designate that money to the pension programs, before the
city becomes accustomed to having it in the general operating funds.
In addition, Conzo said the city should continue to use the
increase in property taxes each year and maybe a little more. He
noted that he fully realizes the city is in a cash-strapped
situation and that in order to designate more from the property tax
revenues, the city will have to find somewhere else to cut.
And finally, he said another, much less desirable solution that
he hopes the city won't have to use is to levy a tax for the pension
plans.
In a recent meeting of the council when the discussion was
focusing on a new utility tax for the city, Carmitchel also planted
a seed. During that discussion, the council learned that if they tax
utilities at 3 percent, they can finance a new safety complex for
the fire and police departments and have some cash left over each
year.
While the council is considering the utility tax with mixed
opinions right now, all seem to agree that if they do tax utilities,
the money should be designated for specific items.
Designating money for a safety complex is a good idea in the
opinion of most aldermen. Other suggestions have been that the extra
cash could go toward some of the city downtown revitalization
projects, and Carmitchel voiced an opinion that perhaps the city
should designate part of that money toward the pension funding.
Conzo said that in addition to all this, the laws could change
and the problem could end up being not so big after all. But, until
that happens, the city needs to look at what it can do now as well
as in the future to meet state requirements.
He concluded by saying that regardless, this is an issue that
needs to stay in the forefront. "This is not something we should
kick down the road," he said. "We need to get on with it."
