Why Illinois mayors have little control over pension costs

By Ted Dabrowski

Ask Danville, Illinois, Mayor Scott Eisenhauer if he has any control over his police and fire pension mess and you’ll quickly see frustration set in. “Springfield makes all the rules but localities have to pay for them.”

For decades Illinois has prided itself on being a “local control” state. Local control was originally meant to push authority for policy decisions down to the lowest levels of government – as close to the people as possible.

The reality, however, is just the opposite, and nowhere is that more evident than in the state laws mandating pension benefits for police and firemen across Illinois. State lawmakers impose one-size-fits-all government benefits and local governments – meaning local residents – have no choice but to pay them. For some cities, that’s bringing on bankruptcy.

Eisenhauer knows a thing or two about the local pension crises hitting cities across the state. Danville’s pension funding levels have collapsed to levels that make them virtually insolvent. The police pension fund in 2016 had just 30 cents of every dollar it needs to ensure it can meet its future obligations.

The fire fund is even more broke. It was just 17 percent funded then.

It’s why Danville recently implemented a special pension tax – what Wirepoints argues might be economic suicide for the city – to try to stave off the insolvency of their plans. Danville was featured in a Wirepoints report titled, Springfield fiddles while Illinois cities burn.

Eisenhauer is quick to describe one of the reasons why cities like Danville are in such a mess.

Of the five major components that impact a community’s pension costs – the number of active workers, the number of pension beneficiaries, salary levels, benefit levels and the pension fund’s actual rate of return – he argues he has partial control over just one: the number of active workers employed by the city. Even then, “minimum manning” laws – which require a city to keep a certain number of firefighters on duty at all times – prevent the mayor from having full control over headcounts.

Of the other four components, he’s got little control:

• Eisenhauer has little to no influence, by definition, over the number of retirees currently in Danville’s police and fire pension funds.
• The mayor’s control over salaries can be overridden by an arbitrator whenever there’s an impasse with the unions – the result of state mandated, binding arbitration rules.
• Springfield sets the pension benefit levels – from the benefits formula to retirement ages to cost of living adjustments – not Danville’s city council.
• And Eisenhauer has virtually no control over the funds’ investment rates of return. Actual returns are determined by the financial markets and influenced by the state’s antiquated investment rules.

Local control is a farce today and the bloated costs of Illinois’ nearly 7,000 units of government, many of them overlapping, are contributing to Illinois’ highest-in-the-nation property tax rates and crumbling municipal finances across the state. 

Illinoisans pay three times more in property taxes than residents in Indiana do, and yet the local pension crises continue to spiral out of control in the Prairie State.

More than half of Illinois’ 650 public safety funds are less than 60 percent funded, according to the most recent data from Illinois’ Department of Insurance.

Those local crises won’t be solved by raising taxes. Municipalities can’t endure more out-migration of people and businesses as fees and property taxes have already spiked.

Instead, state mandates like those that set pension benefits, collective bargaining rules and prevailing wages must be eliminated and/or rolled back dramatically. Municipalities won’t recover until local officials can bring the cost of government, and their massive debts, back to levels their residents can afford.

And for Eisenhauer, the solution for pension benefits going forward is easy. “I already compete with other cities on many factors, so let me compete on retirement benefits. Get the state out of it. They are not helping us pay for them anyway, so we won’t lose anything financially.”

Eisenhauer wants local governments to offer their own local retirement plans to their workers, whether a pension, a defined contribution plan, or even nothing in exchange for higher salaries.

For many cities, though, the days of structural reforms and a change in pension benefits have probably passed them by. For those communities, local bankruptcy – currently not allowed under Illinois law – might be the only option that can both protect retirees and allow cities to restructure their overwhelming debts. Danville may be a candidate.

The bottom line is this: Illinois can’t afford a system where one entity of government establishes all the rules and benefits and another unit of government is forced to pay for them.

It’s a formula for bankruptcy.

See more Wirepoints work on pensions

Municipal pensions

• Harvey the first domino in Illinois: Data shows nearly 400 other pension funds could trigger garnishment by state
• Second domino falls in Illinois: North Chicago revenues garnished for pensions
• Beyond Harvey: Many Illinois municipalities running out of options

Pensions and bankruptcy

• Is bankruptcy for states Illinois’ answer? A primer
• Why a bankruptcy option for municipalities is essential
• Latest on Harvey’s pension intercept and why it matters for all Illinois towns and cities

State pensions: Overpromised, not underfunded

• Illinois state pensions: Overpromised, not underfunded
• Overpromising has crippled public pensions. A 50-state survey