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 The city of Mattoon, Illinois, is
struggling with a public safety pension crisis. Its local police and fire
pensions are less than half funded. And the city’s pension costs – which have
nearly doubled over the past decade – are overwhelming local taxpayers’ ability
to pay for them.
The city’s vital services are suffering as a result. Most recently, Mattoon was
forced cut its fire department’s ambulance services to help make its annual
pension payments.
And unfortunately, Mattoon isn’t alone. It’s just one Illinois community being
forced to cut services in the face of ballooning pension costs.
Mattoon forced to cut local services
On July 18, the Mattoon City Council voted to end its public fire ambulance
services in order to free up funds for its fire and police pensions.
In 2015, the city had to contribute nearly $3 million to its local pension
funds, double what it had to contribute a decade ago.
But more taxpayer dollars have done little to stop Mattoon’s pension crisis from
growing. The city’s unfunded pension debts have more than doubled over the
decade, to nearly $42 million dollars in 2015 from $21 million in 2005.
Mattoon’s police and fire pension
debts rise despite increasing taxpayer contributions
Mattoon police and fire unfunded pension liabilities vs. annual taxpayer
contributions
The pension systems’ funding levels have fallen as their unfunded debts have
grown.
Both of Mattoon’s pension funds have less than half the money they need on hand
right now to pay out future benefits. Police pensions are just 47 percent funded
and fire pensions are only 42 percent funded. If they were in the private
sector, Mattoon’s local funds would have been declared bankrupt many times over
by now.
The city’s crisis is further compounded by how few active members there are now
paying into the systems compared with retirees taking money out.
In 2005, Mattoon had a near-even balance of retirees to active workers – 79
actives and 82 retirees.
By 2015, there were just 68 active police and fire workers contributing to the
pension funds compared with nearly 100 retirees taking money out. That imbalance
has only accelerated the fund’s decline into insolvency.
The downstate police and fire pension crisis
Unfortunately, Mattoon is not alone in having to deal with a burgeoning pension
crisis.
 Communities across Illinois are being forced to cut local services and raise
taxes to afford their pension payments. Springfield has closed library branches
and has threatened to lay off police officers. Peoria has added new utility
taxes. Decatur has shut down its bookmobiles. And property taxes are growing
across the state to pay for pensions – piling onto the highest property taxes in
the country.
But higher taxes and service reductions haven’t fixed the local pension crisis.
Illinois police and fire systems’ funding ratios have declined by more than 20
percentage points since 2000.
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In all, local
communities across the state are dealing with a collective $10
billion police and fire pension crisis. There are 651 individual
police and fire pension funds outside of the city of Chicago. Today,
those pension systems are collectively only 55 percent funded. And
nearly 200 funds have less than half the money they need on hand
today to pay out future benefits.
The collapse of Illinois’ downstate police and fire funds is
overwhelmingly due to the simple fact that they are unmanageable,
especially by local politicians.
Many of Illinois’ downstate police and fire pension funds
continually fail to meet the assumed investment rates of return
needed to meet their pension promises. Others have had to adjust
their actuarial assumptions, further driving up costs.
But the biggest reason downstate pensions are struggling is the
rapid growth in member benefits (accrued liabilities) over the past
several decades.
The assumed benefits for police and fire workers have grown by more
than 750 percent over the past 30 years, far faster than fund
assets, the economy, inflation, the state’s population and
taxpayers’ ability to pay for them.
With benefits growing so rapidly, even pouring hundreds of millions
of additional taxpayer dollars – through cut services or higher
taxes – into local pension funds has not been enough to keep them
healthy.
The defined-contribution solution
Mattoon’s elimination of its ambulance services is just the latest
example of the severity of the state’s local public safety pension
crisis.
Residents who rely on local government services across the state are
at risk because of the inherent failures of defined-benefit plans.
Many police and fire workers don’t have a secure retirement and
there are some who are close to losing their retirements altogether.
And taxpayers are burdened with the highest property taxes in the
nation partly to pay for a broken and bankrupt system.
The only way to begin an end to the local crisis is for cities to
introduce responsible, manageable 401(k)-style plans for new workers
going forward and optional plans for current workers.
State Sen. Dale Righter, R-Mattoon, has introduced a bill that
creates 401(k)-style plans for state workers. His proposal can be
expanded so all local government workers can gain access to
401(k)-style plans as well.
In addition, Righter’s proposal can work in conjunction with a law
recently signed by Gov. Bruce Rauner requiring communities across
Illinois to create 401(k)-style plans for their police departments.
Local firefighters should be granted access to the same plans.
Creating 401(k)s for local workers will help stop the bleeding of
local finances in cities such as Mattoon. But stopping the bleeding
is only the initial step in dealing with the local pension crisis.
Communities will still struggle to grow unless the massive local
pension debt they’ve built up is reformed as well. Solutions to
reduce these debts include authorizing municipal bankruptcy,
reducing benefits through collective bargaining, and making changes
to the Illinois Constitution.
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