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By: Ted Dabrowski and John Klingner

 

On Tuesday, the East St. Louis’ firefighter pension fund demanded that Illinois Comptroller Susana Mendoza intercept more than $2.2 million of East St. Louis city revenues so they could be diverted to the pension fund.

The fund trustees said the city shorted firefighter pensions by $880,000 in 2017 and another $1.3 million in 2018. Under a 2011 pension law, the state comptroller gained the powers to intercept city revenues on behalf of police and fire pension funds shorted by their municipalities.

Harvey was the first municipality to run afoul of the intercept law. North Chicago, a Chicago suburb of 30,000, was the second. Now it’s East St. Louis’ turn.

Back when Harvey was first intercepted last year, Wirepoints reported that comptroller confiscations could wreak havoc on hundreds of Illinois communities, potentially creating a domino effect. Hundreds of Illinois’ 650 pension funds have not received their statutorily required contributions from their respective cities in recent years, meaning the intercept law could go into wide usage under a broader crisis scenario. In the most recent analysis of Illinois Department of Revenue data, nearly half of the 650 funds were not properly funded in 2017 (see details below). 

That domino effect could be exacerbated given that municipalities have virtually no control over their own pension funds. State law sets all the rules and pensions are protected by the Illinois Constitution, meaning that in a market downturn, the pension funds may have little choice but to demand more intercepts.

The East St. Louis firefighter fund has certified to the comptroller that the municipality didn’t fully pay its required contributions to the pension fund in 2017 and 2018. Now the Comptroller has 60 days to decide whether that’s correct. After that, it can begin confiscating East St. Louis revenues. The request by the lawyers of the firefighter fund can be found here.

The intercept law was first utilized in 2018, when Harvey, Illinois, revenues were garnished to pay the city’s police and firefighter pension funds.

That intercept of nearly $3.3 million led to the layoff of 40 public safety workers so the city could avoid insolvency. The city found it couldn’t simultaneously pay for both current workers and pensioners. The city and the pension plans eventually reached a deal that relieved some of the pressure on the city.

The East St. Louis intercept

East St. Louis is no stranger to fiscal crises, but the intercept is bound to cause the city a new level of pain. The Comptroller can confiscate revenues that come from the state and an overwhelming share of the city’s general budget comes from the state.

If the full $2.2 million is intercepted, the city would end up losing the equivalent of 10 percent of its budget (the city’s 2018 general budget equaled $18 million). And what’s worse, the city’s 2019 budget is already facing millions in deficits.

East St. Louis’ fire and police pensions are some of the worst funded in the state, with funded ratios of just 31% and 9%, respectively. In total, the city has a shortfall of more than $104 million in its public safety pension plans, according to Illinois’ Department of Insurance. That’s more than $9,700 per household in a community where 43 percent of people live below the poverty line.

And with just $6.1 million in assets and annual payouts to beneficiaries totaling $3.7 million, the city’s fire fund has the equivalent of only two years of payouts in its accounts today.

Another day, another domino 

Cities like Harvey, North Chicago and now East St. Louis are the vanguard of a much wider problem faced by municipalities across Illinois.

The most recent numbers show that 301 of Illinois’ 651 public safety pension funds, or 46 percent, were shorted their full payments in 2017, according to the actuarial standards published by the Illinois Department of Insurance.

Illinois cities – from Kankakee to Danville to Alton – need pension fixes before costs bankrupt them. And while state politicians have effectively quashed any chance for reforms now, that shouldn’t stop city officials from demanding real changes.

Municipal leaders across Illinois need to demand the following if they want their cities to survive Illinois’ collective crisis:

  1. An amendment to the constitution’s pension protection clause so pensions can be reformed and workers’ retirement security saved;
  2. The ability to convert pensions to defined contribution plans for workers going forward; 
  3. A freeze on retirees’ cost-of-living adjustments (while protecting small pensioners) until pension plans return to health;
  4. Public sector collective bargaining reforms so officials can hold the line on new labor contracts, and;
  5. The possibility of a fresh start through the ability to invoke municipal bankruptcy

The troubles brewing in Illinois are all happening during one of the longest economic expansions ever. When the economy and the stock markets inevitably correct, things will only get worse.

Without the above reforms, East St. Louis, North Chicago and Harvey might only be the first in a long list of collapsing cities.

Read more about Illinois’ downstate pension crisis:

 

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Poor Taxpayer

Solve the Problem with a U Haul headed to Florida (zero income tax).
Tens of Thousands of people from Illinois are doing this way.
The greed of the public sector will never end.
Run for your economic life.
Illinois is burnt toast.
There is NO HOPE FOR ILLINOIS.
Destroyed my Democrats.

Astonished

Destroyed by your neighbors who listened to the sock-puppets’ (media) and panderers (politicians’) lies. You can’t fool an honest man, but we’re surrounded by people who think there’s a free lunch somewhere.

Mike

Has the Illinois Comptroller confirmed there have been diversion requests from only the pension funds mentioned in this article?

The Comptroller does not notify the public of each request as it occurs or on any regular basis?

The Comptroller does advise some in the press. Somehow, we are not on her list. We find out anyway. There are no others.

Ronald Drumpf

The solution to this continued insolvency is to vote ALL the Republicans out of office and get fiscally responsible Democrats in to correct decades of political malfeasance in every Illinois county. The GOP is killing this wonderful state!

Gemini

Fiscally responsible Democrats?

HAHAHAHAHA.

Have another hit off the crack pipe.

Ronald Drumpf

Don’t make me report you to Antifa – I know people who are high up!

Freddy

Good One- After Jan 1st with the new cannabis laws we will all know someone who are high-very high. Question. How will police know if someone is driving while high other than the obvious of laughing and 8 empty pizza boxes in the passenger seat? Is there any special test.

DOUG

If we could impose a drug test to be eligible to vote, (testing for crack, weed, coke), all of Illinois problems could be solved immediately!

Astonished

How about imposing a test for citizenship, or for knowledge above the level of a 9-year-old? Remember Jay Leno’s “Jaywalking?” The notion that certifiable idiots who cannot even name the three branches of government are “entitled” to vote makes the entire notion of “democracy” the blackest of black comedy. Our society is in a steep dive because “everyone” is “equally” able to express their opinions via the ballot.

Imagine if “everyone” was “equally entitled” to fly the airliner in which you fly…

Astonished

Given news reports, I’m tempted to start a business that takes Ford 6000 truck chassis and turns them into “passenger cars” with bullet-resistant panels and windows. Then, when the drunken or stoned clown crossed the center line he’s the only one who goes to the morgue. And if the 6000 owner is accidentally down range of a shootout between warring gangsters, at least s/he won’t catch lead.

Gemini

I wish Chicago Fire Dept would do this. It would bring us that much closer to forcing Springfield to authorize bankruptcy for Chicago.

NB-Chicago

Considering municiple bankrucy is not const allowed. This is probably very unlikely, because the municiple administrators are as pension hungry as all the other municiple employees, but what would happen in a town like Harvey if the town just closed up shop and laid off everyone ( Harveys pretty much already there)? Who collects the bond & pension debt, who actioins off the assets? The state?

Adam

The point is at some point they will have to allow bankruptcy. It won’t matter what they want to do. A tiny dump can collapse, but not a major city like Chicago, or even the size of Peoria.

NB-Chicago

Yeah, buts there’s 100s of Harveys. Sure very few if any harvey employees live in harvey, think i was reading the current mayor doesn’t even live there. Seems a saving republican pol could run as mayor on a platform that he’d just close up shop, shut it down, just dont collect the taxes..maybe the bereft home owners would be better off.?.dont know what the legal ramifications are..

NB-Chicago

Per crains/hinze articale, only relief from state on municiple pensions upcoming will be a consolidation of pension funds for better investment choices & no bail out. Which will save pennies… Crain’s Chicago Business: Mayor Lori Lightfoot’s pension pitch hits wall in Springfield.
https://www.chicagobusiness.com/greg-hinz-politics/lightfoots-pension-pitch-hits-wall-springfield

Astonished

I can’t wait until all the pension funds are consolidated under the management of whoever IL’s top politicians select for the job. (facepalm)

I’d bet any amount of money that a little digging would discover family ties or open kickback relationships between IL pols and the management firms, now or then.

It’s a cesspool of corruption, top to bottom. If you don’t see the rot, you’re not looking.

joe blow

can you imagine having some of the worst crime in the country and then all your tax dollars are going to cops to not work? lol

Rick

This is called rearranging the deck chairs on the Titanic.

DantheMan

Apparently, the Illinois collapse will not resemble what happened to the whole country in 2008. That collapse hit suddenly and few saw it coming. This is going to be different. This time we have warning signs like East St. Louis. This time we have birth pains. The pain will become more frequent and more intense with time. There’s just one difference. When the birth occurs, the pain isn’t going to stop. Also, with our wonderful doctors in Springfield monitoring the patient, we are pretty much guaranteed a miscarriage.

Adam

My E-mail to Greg Hinz today: “Greg,

I notice you allow Madigan and Cullerton to hide away and not ever have to face questions about their massive failures running the state. And yes, they do run the state. I mean, Illinois is headed towards forcing the Feds to allow state bankruptcy, and yes, they will have to, and yet you aren’t asking old man Madigan and fish lips Cullerton for comments on our 250 plus billion dollar pension debt that can never be paid? Pathetic.”

Astonished

Hinz is in the club with Madigan and Cullerton.

You’re not in the club.

Get it?

Gemini

I wonder when it will be Chicago’s turn?

Chicago police and fire pensions are not far behind, at 22% and 17% funded, respectively. Of course, Chicago has many more can-kick levers than East St. Louis does, but it, too, is running out of options. Real pain will be felt when the national economy stops covering Chicago’s cracks.

Adam

Ted, let’s be real here – Chicago is going to go bankrupt. The next recession at the very latest.

nixit

The first police officers and firemen on the chopping block will be the newbies, namely Tier 2. In other words, municipalities will be forced to layoff their most cost-effective employees.

debtsor

Unions exist only to protect their most senior members. Rather than cut everyone’s pay and keep every union member employed, they gleefully bargained to allow the junior members to take the brunt. Its wrong.

Mr_Common_Sense

And that will be a double whammy. 1st, the residents will lose first responders, and 2nd, those laid off tier 2 employees obviously will stop giving there 9% share into the pension fund.

Adam

A question for Ted and or Mark: “Without the above reforms, East St. Louis, North Chicago and Harvey might only be the first in a long list of collapsing cities.” When will they be forced to allow these cities to have bankruptcy? There is no doubt they will have to. It just seems these cities are already there.There is no other way out at all.

Who knows? The establishment is clearly willing to let Illinois cities like those go past the point where bankruptcy could have helped.

Adam

Mark,

At some point this becomes a federal issue Mark. Illinois is not putting the safety of its citizens first, it is putting the pensions first. These cities are going to completely collapse, and those that cannot afford to move are going to be put at more and more risk. Someone needs to start passing these issues, one way or another, to the federal level. This is wrong, and police powers at the federal level should apply. The pensions in these cities are going to collapse sooner than later no matter what they do, wouldn’t you agree?

debtsor

I know this wasn’t directed to me, but some cities will collapse sooner than others. Democratically controlled cities (I know, most municipalities are non-partisan, but we know which ones are Democrat based on voting patterns) will collapse sooner rather than later. And State Democrats, lets be honest, don’t really care about poor Democrat communities that vote 95% Democrat in every election for generations now. Why should they care about their constituents? It’s not like they’ll ever elect someone without a D and they never vote to hold someone accountable. Those cities collapse, and no one will care. It will take… Read more »

Adam

You just like to think the full on collapse won’t happen while you are here or your kids. But, the next recession will bring that on without a doubt, and you will be here. Even a city like Peoria being in collapse would force them to allow bankruptcy. It is too big to not do anything. You seem to like to argue. You are right, I did not direct my comment at you. So, bye. Don’t become the OsRetard Wily of this board where you comment to things not directed at you, normally in an contrarian way. Mark says this… Read more »

debtsor

I agree with you things are bad, and beyond repair; I just don’t see the political will to fix things anytime soon. I am not anything like Oswego! Im fully on board with insolvency. But my informed opinion – and yes, it’s an informed opinion – is that Illinois in areas will look like Syria after the civil war before Springfield takes any action that adverse affects its political class. There’s just no way they’ll allow pensions to be cut unless there are wild bears and cougars roaming the state because it’s been practically abandoned. There is always higher taxes,… Read more »

Adam

There are not always higher taxes, at some point people are tapped out, and in Illinois, we are very close. You also cannot cut forever. Look, no one is going to live here if it gets as bad as you say. Literally the state will be abandoned. I sure as hell won’t be here. There will be no way the pensions will still be getting paid if it even gets half as bad as you say, because there will not be be enough people here to prop them up anymore. That is simply math.

Adam

Also, the Feds will step in long before Illinois looks like Syria. That is not realistic. Look, Cap Fax is not realistic in one way, but comments like Illinois will be some wasteland where people are still living are just as unrealistic the other way. No one will live here far before that happens, which is why it can’t happen. There is no way to continue paying for the pensions once a certain amount of people leave because taxes can only be raised so high and services and only be cut so much. That is reality, and reality wins. Just… Read more »

Astonished

You write like you think the Federal Government is this big, omnipotent daddy. Look at the current situation in Washington DC. The Federal Government is basically in a civil war over who will control the executive branch. The USA can’t even police its own BORDERS! I hate to break it to you, but the situation is far more insoluble than IL’s endemic corruption and insolvency. Conditions in North America today look very much like they did in the late 1850’s. Even within families there are endless reports of people disowning each other over this vast political chasm. We cannot all… Read more »

Why not leave now? Anyone who is same is.

Astonished

Debtsor, do you not find it fascinating to see people in highly segregated ghettos in Chicago, places where criminals shooting up street corners is endemic, voting en masse for the democrats who want to release those arrested for violent crimes and illegally carrying guns (Foxx, etc.) and pull the police from their communities (over “racism” claims?) It’s a testament to how belief trumps common sense (and even self-preservation.) I do not, however, agree with your timing. While my own forecasts proved ridiculously short (I thought this debt-supported orgy of insanity would top two decades ago), I think the math stops… Read more »

See debtsor’s answer, it’s dead on.

Adam

OK, but you also said this can’t go on another five years multiple times to me on this board. So, I am assuming you mean at some point in the next five years it will hit a bigger city that will force change? East St Louis is a dump, and I get why they wouldn’t care about it in reality. Please be clear what you meant by this all cannot go on for five years. P.S. Chicago is bankrupt now, so maybe Chicago is what will force them to act soon. In the end, when one goes, they have to… Read more »

Adam

I expect an answer for this Mark. I mean, on one hand you say this can’t go on for another five years for cities like Peoria or Chicago, but then someone else says this could go on for another twenty years and you agree with him? Chicago and Peoria most certainly will not be able to go on another five years as they are now. NO WAY.

I think you’ve asked that probably 20 times. My view remains that how, when and where the meltdown happens is impossible to predict. Many different possibilities are plausible, but dependent on unknowns like the economy and elections. For some municipalities it obviously already happened.

Adam

I mean the five year comment you made. You said it wouldn’t go on for five more years as far as Peoria or Chicago. That is fairly specific. I wanted to know why.

Freddy

Mark- My guess is it could be as soon as next year but hope not. The Dems have been trying to take down Trump from day 1 and what better way than a market crash or severe correction just before the election. Pension funds would take a hit and since they can’t lose(diminish or impair) taxpayers will be on the hook. Double whammy. Our investments take a hit while we will pay much more in tax’s to fund pensions. I think the word I am looking for is. BLINDSIDED

Adam

That is, until people cannot pay anymore, you know, because there is a limit to what people can actually pay.

Freddy

Your right. My 2 rentals and my home I pay approx $19K in property tax’s. I already owe almost $14.5K for next years tax’s.More than 1/2 goes to school dist. Add in mortgage-insurance-upkeep. On the Rockford home I pay 47% of monthly rental income to property tax’s. I’m close to my limit.

Adam

Yep. This entire thing is going to go bust during the next recession because they won’t be able to raise taxes in any meaningful way. They also cannot make cuts statewide to the point the state no longer functions. That leaves pension cuts, even if it comes from the federal level.

Freddy

There was talk a while back about taxing private retirements to fund public pensions plus having a 1% state wide property tax. What a crock!! Today Robert Schiller is concerned about 2006 starting again. I foresee some type of pension wars in the near future. Maybe a taxpayers strike is needed? One by one we are being picked off but as an organized group it would be more of a collective voice. The ballot box is pretty much rigged.

Astonished

“Yep. This entire thing is going to go bust during the next recession” The next “recession” won’t be like 2000-2003 and 2007-2009. Every signal I watch says that this 10 year (and counting, it may not be over) rally is the last in the series before something far more wicked this way comes. I have a chart of the DJIA going back to 1928. Doing an MACD for it is eye-popping. And comparing the arithmetic chart to the logarithmic chart is jaw-dropping. We are in a Wil-E-Coyote suspension-of-gravity hold for the moment, and the recent all time high in price… Read more »

DOUG

When the Feds step in and the rest of the country asked to bail out Chicago Mafia and Illinois Union Thugs, Illinois must lose its Statehood Charter and be relegated to Territory Status like Puerto Rico.

Adam

I would also like to add that at some point at least one of these cities will end up being faced with laying off their entire police and or fire force, and that won’t be able to happen. They also won’t be able to raise taxes more because the city will already be in collapse. What then?

The Feds need to step in. Madigan and Cullerton are pathetic people. How come they are never asked to comment on these issues (East St Louis, Harvey) by the press?

MikeH

Because the press kowtow to the establishment. (Them) Same reason it was only Mark and Ted who called Mendoza on her BS CAFR. Unfortunately, too many people still labor under the illusion that they can believe what the newspapers/tv anchors tell them.

Adam

Maybe Mark or Ted can answer this, but is Mike Madigan truly a horrible person, or just completely out of touch with reality, or both?

DOUG

Made Man in the Mafia. He’s their representative

Astonished

The mafia (Chicago Outfit) is a subsidiary of Cabal, Inc. That’s a rabbit hole you go down if you have your tinfoil handy, but in all frankness, it is increasingly plausible.

riverbender

That is a very good point. Bankruptcy is very possibly not an option for many municipalities yet day by day things continue on the down slides. I think a lot of people do not recognize or even care to recognize that these pensions are basically first mortgages on the real estate that they own. However most Illinois citizens that I talk to take an attitude of “laugh and the world laughs with you” approach because they simply do not care. A good example of this is consider that the City of Alton recently sold off its water department to help… Read more »

Adam

I think people are pretty uninformed and dumb no matter where you go. People are, for the most part, stupid.

Astonished

Adam, in case you ever return to this, I think you’d find solace in an article published in 1936 in The Atlantic, by Albert J. Nock, titled “Isaiah’s Job.” It’s widely available on the Web. tl;dr, yes the masses are mindless, and preaching to them is a waste of time. Isaiah was tasked with preaching to the Remnant, defined as the subset of people who try on their own to figure out how they should live and then try to live that way (in other words, thoughtful people.) The problem is, no one gets a membership card for the Remnant.

Evan

Hey Mark do you know if the pension management consolidation bill being debated in the legislature right now will eliminate this intercept?

I have heard no discussion of that.

nixit

Even if you consolidate all the separate police and fire pensions systems into a single statewide pension system, each municipality will still have to make the full payments every year (think IMRF). Maybe the delinquent municipality will be offered a payment plan and their pensions will be technically more solvent because they’ll be able to pay their pensions out of a giant shared pool.

I don’t like the idea of being on the hook for Harvey’s and ESL’s pensions now. I’m already on the hook for my state, county, and hometown.

Freddy

As I mentioned on a different post if you consolidate the fire pensions /police pensions how would that be fair to towns that are good stewards of public money vs those who are not. There would be much less administrative costs which helps. Just like if a few of your or my neighbors spent money like crazy and got into trouble the other neighbors would have to pool their bank accounts. People would be livid except those who spent their money. There are not any easy answers but most solutions will involve taxpayer money. It always does. P.S. Do you… Read more »

Mike

Although better funded overall than most pension funds, the percent funded for individual employers varies in IMRF.

And some of the units of government that are funded below the average are in what one would consider nicer areas.

Mike

In IMRF, employers sometimes make less than the required contribution.

James T. Palermo

I don’t know that the consolidation bill would do ANYTHING to stop the intercepts. By my read, the various plans would continue to won their own assets and liabilities, but plan management would be consolidated to save of professional fees and what not, which will do little to improve returns or reduce liability growth

mike Williams

So, not to be funny, but if you are an arsonist or car thief, East St Louis is looking pretty good if you live in the area. It might be a good time for every resident to purchase a few fire extinguishers and a gun. Also, it’s time for Allstate and State Farm to reevaluate the home/auto insurance rates for the increased risk. Also, Century 21 and Remax may want to reduce staff since no one will be buying for awhile.

Willowglen

Each of the cities mentioned has its own unique set of problems. I could easily see, as debtsor indicates, East St Louis becoming Syria, with no real law enforcement or effective delivery of water and power. That will be a tragedy not easy to comprehend. Dangerous in a way we cannot yet understand. North Chicago? With the naval base there, the Feds one way or another will step in (it is the sole place the Navy trains its new enlistees). Harvey? I would think the whole Southland will be permitted to become Syria, so to speak. A really dismal state… Read more »

Astonished

One man’s “Syrian Civil War in America” is another man’s urban renewal. Everything is cycles, and we’re due for a decline of truly epic, if not Biblical, proportions.