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Support firefighters: Please vote 'Yes'
The following information was put together by Greg Klaiber, an Evanston resident and member of the Evanston Fire Department. I, too, am a resident and firefighter in Evanston, and wish to share his insights with my fellow citizens.
Please consider the following information when you head to the polls next Tuesday.
Jason Hays
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An open letter to the citizens of Evanston:
As both a property owner and future beneficiary of a City of Evanston fire pension, I would like to comment on the recent reports of the pension funding crisis facing our City.
It has been accurately reported that the fire pension fund is currently only 41 percent funded, and according to the City’s current actuaries, the fire and police pension fund will need roughly $140 million over the next 26 years to cover the deficit.
The City Manager has offered several proposals to address the crisis. It is now up to the City Council to vote to raise taxes, cut services or a combination of both. There will also be a referendum question on the ballot on Feb. 5 calling for an increase in the transfer tax on properties sold in Evanston to help supplement the shortfall. It is important to note that passage of this referendum will result in a lower property tax increase. Evanston’s firefighters need your yes vote on this referendum, which will raise an estimated $800,000 per year to go directly into the pension funds.
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And I thought Evanston was progressive! I can't believe the greed of these so called progressives in Evanston. How dare they vote down any new taxes. Why don't these fat cats want to share their wealth with the poor civil servants, who have dedicated their lives to serving the public good. Teachers, fire fighters and politicians deserve to make a decent wage. We need to fund social services to give back to those less fortunate than us.
Some of these posts continue to miss the boat on the subject of investment returns. We get lots of calls and letters asking us why, if the Harvard Endowment can make 23% last year, or the CSO endowment 17%, or the CTA 19%, or Chicago Fire Pension 18%, how come you guys can't make that much? It's the legal investment restrictions. 45% equities/55% bonds . The bonds do end up being a saving grace in today's market-two of the Police Fund's bond managers did over 9% last year. Also keep in mind that prior to 1/1/98, we had no legal authority to invest in equities.
Check Jeremy Siegel's( Wharton School Professor of Finance) book "Stocks for the Long Run": he suggests 7% has been the long term return from stocks, and 3.5% for bonds (then do the 45/55 math) that would give you a total return of 5.1% up to maybe 6.45%. That's the past. Anything into the future is just educated guessing, and must be re-examined and adjusted on a regular basis. All those other funds do not have those restrictions-they can invest in private equity, hedge funds, direct real estate, you name it. We cannot. We have tried to get those restrictions reduced or removed. House Speaker Madigan was not receptive. It's difficult to see how one could not be in favor of a bill that would not cost anyone anything, and would save the taxpayers million of dollars. We'll try again. We didn't see the folks at the Illinois Municipal League pushing a reform like this.
So the returns have been acceptable given those restrictions. EXCEPT for this:
the funding formula assumes that correct amount of money will be put aside each year. Instead of the Funds investing the money,and the bulk of the benefits being paid thru investment return, money not contributed returns zero per cent interest; the investment return clock keeps ticking, however, and the taxpayers must make that up. C+I=B+E. (Contributions plus investment return equals benefits plus expenses). $10 million shorted can't be repaid with $10 million. Wait ten years and it's $20.6 million. Wait twenty years and it's $42 million. The city's former actuary lowballed the benefits, and was way high on the investment return (keep in mind that of the current amount owed, about two thirds, or about $93 million, is attributable to interest on the money not contributed, and one third, or about $46 million-easy to amortize over the next 26 years-is due to "state mandated benefit increases"). It made the city comfortable putting in much lower amounts. Now it's time to pay the piper.
City functionaries and the Illinois Municipal League like to say the problem is due to benefit increases and poor investment return. Both claims are disingenuous. Evanston's "crisis" has been created by the folks at 2100 Ridge, over many years. The three root causes: 1) Underfunding since 1970 (and claims that the city has made the "legal contributions" during the past ten or twenty years are not correct) 2) the 1993 change in the funding method (what I call the" Deal with the Devil") engineered by the city and their friends at the IML, which gave six-eight years of lower payments in return for ever increasing future payments (that future is now) and a guaranteed increase of any debt of at least three and a half times. and 3) actuarial smoke and mirrors.
Take a look at the pension fund mess in San Diego (the city settled with the SEC for big dollars after being slammed for fraud, and now they're looking whether to indict individuals) and the increasing number of actuarial malpractice suits (most recently in Alaska, where Mercer is being sued for $1.8 billion). City Manager Carroll is trying to get the City out of the hole they dug while they still can-we hope the Council will take their responsibility seriously.
Many are talking about how the returns are limited on the investments and the funds could do better. What happens if the returns tank? The tax payers will end up paying even more? Since the taxpayers are responsible. People are under the impression once we give the funds the money we are not responsible. It appears if the funds go into the red due to bad investments the taxpayers are on the hook for the difference. It appears taxpayers take all the risk. People are thinking this is like their own 401K it is not.
It appears to me the taxpayers have no control over the funds - the pension boards have control - little over sight of the city has occurred throught out the years. I recall no one at the city at one meeting could even figure out who was appointed to the pension boards.
It is clear to me the city under funded this - so that has even put us in the hole even more!
The issue here that is of most interest is over the years council members have know of problems and how much time have they put into understanding the problems - it would be interesting if you could give us the number of times the council actually met on this issues to discuss it. ie. Over the last ten years prior to the current crisis. I would guess they have met numerous times on affordable housing as an example and once a year at best if not at all in many years on pension over sight.
Can't the City just turn over the management of the pension to the unions? Why should the the City be burdened with this responsibility? This transition is taking place with the GM, Ford etc. If the City could just turn the pension over to the unions, the unions would be free to invest the funds however they want!
They live under the same 45%/55% restrictions - so why are they doing so much better?
have virtually no restrictions-they can invest in anything they choose. Over the long haul, that's good for them, as they are woefully underfunded. In one recent year, Chicago Fire, which was about 80% in equities, had an annual return of 18%. They also paid out about $750 million more than they took in. In a market tumble, however, they've been known to lose 25-30% of their money, and only just recently made that up. Currently, only Article 3 and 4 funds (police and fire outside of Chicago) have significant restrictions. Ask your legislator and the Illinois Municipal League why that is.
Given your experience and understanding of the pension fund issues, why is it that "only Article 3 and 4 funds have significant restrictions ? how can we get this legislation changed ? you've referenced the Illinois Municipal League before-what is their significance and role with respect to the Police and Fire Pension funds ? thank you for your insights
Clearly, the 45%equities/55% bonds legal mandate is a significant limitation.
How can we get this changed ? Why was House Speaker Madigan not receptive ? what specific committee in Springfield oversees this legislation ? this limitation is not only hurting Evanston, but has to be impacting every municipality in the state - Changing this legislation has to be part of a longer term plan.
Returning to the issue at hand; the citizens of Evanston should expect :
1. Accountability
2. Accurate information (Mr. Schoolmaster is an excellent example)
3. A thoughtful and well analyzed plan
Until this happens, we will Vote NO on February 5th
Personally, in concept, I am not opposed to increasing the transfer tax. However, I am opposed to the tax at the current time and will remain opposed to any tax increase until the 3 conditions discussed above are met.
I'd like to reiterate what I said in another thread: While I, like everyone, wonder how this happened in the first place, I’d like to remind citizens that the City’s bills are ultimately the taxpayer’s responsibility. When citizens pressure elected officials to both increase services and reduce taxes, we put them in an impossible situation. I am reminded of our current water/sewer situation, in which maintenance was deferred until it reached a crisis point, and we now have extremely expensive water. While we need to make sure this doesn’t happen again, how or why it happened has no bearing on the fact that this bill has come due.
I think voters may be under the misapprehension that if they vote no on the upcoming referendum Tuesday, the pension budget crisis will go away. This isn't the case at all. The referendum is about one way of approaching the problem; it is asking HOW we want this bill to be paid (large increase in property taxes/reduction in services vs. a lower increase in taxes/reduction in services and the increased real estate transfer fee.)
I do not think that the citizens of Evanston misunderstand. They know that the pension bill will come due.
What I hear Evanston residents saying is this: we need a more well thought out plan, rather than a knee-jerk reaction that raises yet another tax.
The City Council needs to:
(1) cut spending by cutting pet projects (just this week, they are talking about a $300,000 handout to a for-profit developer. Even the city staff recommends against this handout. The answer should be no but there's Eb Moran, doing his usual song-and-dance for another of his pet projects);
(2) cut spending by reducing significantly the duplication of services;
(3) increase the efficiency of the city operations by consolidating more departments and reducing the number of employees.
When the City takes these steps and saves at least a million dollars a year, then I'll be happy to consider whatever the City proposes on the pension issue.
At this time, the City Council insists on taking the "no accountabilitty" approach and insists that residents just cough up the additional money without any thought at all.
Vote no and let's get the City Council to do some work on our behalf. No firefighters or police officers are in danger of losing their pensions if we take 6 months to consider and implement thoughtful, positive steps.
While I agree there is waste (probably a lot of waste) in the City budget that has needed to be cut for quite some time, I think it is naive to assume that budget cuts alone are sufficient to cover this cost. I urge voters to listen carefully to the budget hearings on Channel 16 and make an educated decision on how you want to pay this bill.
Postponing unpleasant financial decisions is what got us in this mess in the first place. We need an answer during THIS budget session.
Michele - beyond cutting paying for the chemicals to inject the elm trees - which by the way is only a $140,000 hit per year- not $383,000 since that money was suppose to be in reserve, What are you suggesting we cut?
Michele by the way I agree with what you are saying cuts alone with no taxes increases are not realistic over the long run. Operating cost will always go up with inflation and needs so taxes will need to be raised - what I can not stand is all the waste and patronage!
I have an idea. Eliminate 10% to 15% of all city positions across the board. Reduce the salaries of the remaining employees by 5%. Eliminate spousal and family healthcare coverage for all government employees. Close the branch libraries. That should be a good starting point.
If that does not balance the budget, then we can start talking about elimination of entire city government departments. It's mathematically not difficult to balance the budget. It's just that no one has the guts to do it.
I'm guessing that if someone went to your place of business and made such a suggestion, you might be as horrified as I, the spouse of a city employee, am right now. Remember - government employees WORK for salaries and benefits; they offer value to citizens that would otherwise be very expensive to replace (imagine if you had to pay on your own for an on-call ambulance for your family 24 hours a day)
We need cuts - deep cuts - city positions need to be cut, services need to be cut. We do not, however, need to cut off our nose to spite our face.
I agree that city employees add value to the citizens. The problem is that the cost of the services exceeds the amount that taxpayers are willing to pay in tax revenue. If a business pays out more in expenses than it makes in income, then the owner of that business understands that he or she needs to cut costs in order to survive. In government as in business, the number one cost by far is payroll (and associated benefits). Therefore, you cannot have a serious discussion about cutting costs without talking about layoffs and benefit reductions. It's unfortunate that people have to lose jobs, but as long as they have skills, they will find gainful employment elsewhere.
My point is, the budget is never going to be balanced if the best idea anyone can come up with is eliminating tree injections or similar high visibility but relatively low cost government expenditures. We're talking about a $214 million budget here! Where is that $214 million going? By and large, payoll and benefits.
Over the years the city managers in Evanston have done percentage cuts to the budget they tell all departments cut 3%. This approach is not managing.
We can not cut peoples salaries or benifits anyway since a large number of employees are on contracts- I am oposed to taking away salaries and benifits. Although the cost of benifits does continue to go up, so over time they get reduced - this is in the entire economy not a city of Evanston issue.
What I find lacking Michele is the council goes through this excerise once a year - versus a continue approach to operations - they really need a great deal more review of operations through out the year.
Council members are just too involved in their pet projects - versus good over sight to the city. I believe things can be cut here and positions elminated in a logical way that will not impact the basic operation. I think the council needs to tell the community in the area of social services that the rich in this town if they are concerned need to fund them versus the city. Thus eliminating some of them. Also I think the city needs to review the entire CBBG mess - too much is misused that could be helping the poor versus paying employee salaries..
I also think certain positions - such as the sustainability coordinator - citizens need to pick up the responsibility versus a city employee. I seriously doubt they have the funding for this - tonight the city manager really could not say how it was funded when Ann questioned her. ( I have asked twice at council)
tonight they also got into a discussion about a fire planner reviewer - this to me is so stupid - to have the council try to justify a position in the middle of a budget hearing - this should have been discussed in the committee months ago and then brought to council - but what are the council members doing in the committee for fire and police issues - discussing social service nonsense and useless citizens review boards of the police that are not need.
Drastic measures are not need - but council members who have a real world understanding of operations are need.
Michele I still would like your opinion on what should be cut or changed. I think people are getting very angry - with the tax situation - remember years ago the cut the council in half - over high taxes.
What about replacing full-time employees with part-time employees? The city would not have to pay Part-time employees benefits or pensions, which probably represent 25% to 50% of the total compensation package of full-time employees. Part time employees could probably be had for a lower hourly rate as well. They are easier to lay-off during tight times. In addition, I'm guessing there are a number of full time employees whose jobs could probably be fully accomplished in 20 hours a week anyway, so why are we paying them as full time employees? These positions could be filled by seniors or semi-retired persons just looking for a little extra income. Just an idea.
"Council members are just too involved in their pet projects - versus good over sight to the city. I believe things can be cut here and positions elminated in a logical way that will not impact the basic operation. I think the council needs to tell the community in the area of social services that the rich in this town if they are concerned need to fund them versus the city. Thus eliminating some of them."
Junad--this same argument can be used for the elm trees.
Jason -
The elm trees are on city property - they belong to the city - they are not private citizens, who are getting some service from the city. Many of the social services provided by the city over the years have been poorly run. At one point they were spending $1 to give the needy a $1. I view many of these programs as total junk - that are really not providing services - since no one is really monitoring them.
Maintaining the city's assets is not the same as providing a social service program. I seem to recall the city has now replaced almost all the fire stations in town. Interestly enough they do not have any money to replace the civic center. Not very good planning, or maybe it is -depending on your perspective.
The city is in the habit of giving private groups the taxpayers money.
I think someone stated the fire department has a much higher value over trees - I do not agree the forestry department has as much value to the city. It has a function to serve. The forestry employees want their pensions and jobs as much as the fire fighters.
I want to maintain all the basic services here - I do not want to see cut fire fighters or police officers or other employees providing needed services to the community losing their jobs.
But what you need to understand if these council members do not start to correct this mess - they will be laying off firefighters in a few more years ( along with alot of other employees) - since they are clearly running out of options to tax people. The peanuts involved to inject the elms may be gone - but they will be cutting into basic services soon - unless they are going to have 15% tax increase for years to come.
It appears to me almost 40% of the property tax will be going to pension within in a year - this not too sustainable. ( ofcourse we still may have a sustainablilty coordinator)
It is my view the city has run a "Ponzi" scheme that is they have used taxpayers money for the council members "pet projects" and under funded the pensions along with alot of other needed things.
Michele - the water bills are high because the city years ago choose to build a large collector system to move the storm water out of town. It prevented flooding in several thousand homeowners basements. It is a sucess - but given todays environmental issues it is questionable. By the way years ago I questioned a council member on its huge cost and its value.
I do not believe it was an issue of maintenance - by the way we need to replace a large amount of water pipe. Where will we get the funds for water pipe replacement?. It appears we have another twenty years to pay off the bills for the sewer project.
While the firefighters and police officers are deserving, the residents of the City of Evanston need serious and thoughtful information, discussion and analysis of this problem. A quick fix with the prospect of quick dough by raising yet another tax is the wrong approach.
Sorry...I do not think that guilt is appropriate motivation. I want to see a plan and positive action to bring our city into a position of economic stability.
The City Council needs to be thoughtful for a change, rather than groping for the quick (but frequently wrong) answer. Meanwhile, several on the City Council continue their misguided efforts to hand out hundreds of thousands of dollars to pet projects without any end in sight. When the City Council looks seriously at its budget and takes action to eliminate duplication of effort (how about the local defender, when there is already a public defender paid through county taxes) and no longer mindlessly fund their pet projects, then I'll know that they have done what needs to be done.
At that point, I will seriously consider whatever they propose to address this funding shortfall. So firefighters and police officers...please use your influence to sway the City Council members to take a more serious approach to this very serious problem.
Dear "anonymous",
I can understand your anger and frustration. I am sure you are not alone. However, I think taxpayers need to understand that the RETT referendum would indeed be part of a "comprehensive" plan to address pension funding. Passage of the referendum will mean a revenue source of up to $800,000/year for the police and fire pension funds. This is nowhere close to what is needed to fully fund the pensions, but it certainly will help address the shortfall and, at least in the near term, passage would mean a smaller property tax increase on homeowners. There are three causes for the current pension crisis:
1) Insufficient contributions made by the City into the fund over the last 20 years. The City has contributed what is "legally" required of them during this period. However, the legally required contribution was based on actuarially required contributions (ARC) that were insufficient over a long period of time. The ARCs were based on faulty assumptions by the actuaries. For example, the actuaries assumed that 50% of cops and firefighters would retire between the ages of 65-70. That assumption is a major cause of the crisis. Why? because in the 23 years that I have been on the job, not one firefighter has retired between the age of 65-70. Most of us retire in our mid fifties, not our mid sixties. As a result of these flawed assumptions, the City assumed that they would be receiving at least 10 more years of contributions from its firefighters and police officers. Additionally, the payout to beneficiaries would be for less period of time due to the natural fact that we're all closer to the end of our life span at 66 than we are at 56. Why no one picked up on this major flaw is beyond me.
2) There has been an increase in benefits provided to retirees. Actually to retirees widows. Police spouses have always received 100% benefit upon the death of their spouse. Up until 5 years ago, firefighter spouses received a 45% payout upon the death of their spouse. Legislation was enacted 5 years ago to match police and fire widows benefits. However, in order to get this legislation passed, firefighters were required to contribute 1% more into their pension via payroll deduction. We now pay 9.5% instead of 8.5%. So, while this would qualify as an increase in benefits to retirees, I'm not sure how significant it really is in terms of the cause of the crisis. Especially if you think about how few retirees have died in the last 5 years and the additional fact that current members are contributing 1% more each pay check. Another benefit increase was enacted about 10 years ago. This called for a shorter amount of time in which a firefighter could "max out" his or her pension. Instead of maxing out at 35 years of service to the City, we now max out at 30 years of service. Our yearly increase went from a 2% increase/year after 20 years of service to 2.5%/year. I'm not smart enough to know how this has impacted our pension fund. But I can tell you, it pales in comparison to item #1 above.
3) Performance of investments. By law, our pension board can only invest roughly 50% of our funds in equities. The rest have to be invested in low risk investments. I don't know what the rate of return has been, but I'm pretty sure it is not what our pension board or the City's actuaries had hoped.
The bottom line is the City cannot continue to fund our pensions as they have over the last 20 years. They were warned this day would be coming. Some alderman believe the City should defer to some future date in order to come up with a comprehensive plan to address the crisis. However, every year of delay makes the problem that much worse. Something needs to be done NOW. I believe that ultimately, the City will use their lobbyists downstate to enact legislation more favorable to their position on how pensions are funded. But aldermen and City staff need to realize that we have lobbyists too, and we will be working just as hard to see to it that we are provied the benefit we were promised and the benefit we are entitled to.
Greg,
Thank you for clarifying some of the issues. Given the points you raised about the former actuary, it's clear that person or firm did our community a huge disservice. However, our government leaders cannot be allowed to place the blame on someone they hired. So I guess we should start at the top and ask the Mayor who has overseen our community for some time to step up and accept her award for abdicating her responsibilities. The second award for lack of oversight should be given to the City Manager. Third place goes to the Finance Director. And last but not least, to the Alderman who have allowed this situation to fester.
Their leadership positions require full accountability to the Evanston community.
Hopefully they recognize the gravitas of their decisions. Next.
Your point about the investment performance is important. In fact, Illinois legislation limits only a maximum of 45 % equity exposure, and I'm not sure what other limitations are imposed. These are antiquated laws, why isn't our "leadership" working to get this changed ? A recent article mentioned that the 5 year compound annual return for the total portfolio is in the 6-7 % range - this is pathetic. Get the laws changed, hire competent managers and let our assets earn a reasonable rate of return on a risk adjusted basis. This would save our community millions of dollars and this issue should be the focal point of the discussion.
I agree with your point that the City will likely use their lobbying powers to get things changed in Springfield. I hope their focus and attention is to work with other municipalities throughout the State of Illinois to update and modernize our investment opportunities (many other municipalities are likely facing similar issues to Evanston) However, I'm sure their focus will be to lower the funding requirements or push the date out into the future from its currently scheduled 2033. This is the easy wasy out.
Please be assured that you and your colleagues and spouses will fully receive your well earned pension benefits. Not only is this mandated by law but it is the moral obligation of the citizens of Evanston. The end result is not in question, it's the means that is the subject of the discussion.
Investment returns are a huge part of the problem here (protestations to the contrary by the police and fire boards notwithstanding). Why can they eek out only 5-6% returns while other cities have pension boards seeing much greater returns? Why can the CTA employee pension board achieve double-digit annualized returns (under the same restrictions) and the Evanston pension boards can only achieve half of those numbers? Who is advising them?
Excellent point - hopefully more people in the community will become aware of this critical issue and talk to their Alderman. Think about this for a minute. If the combined assets of the Police and Fireman Pension Funds are $100 mm, the difference between generating 5-6% per year and 8-9% is $3-4 mm per year.
Yes, that's PER YEAR !! Compound that over 25 years (2033 is when we're supposed to be 100 % funded. Many questions should be raised :
1. Who is investing the money ?
2. How is it invested ?
3. Who is hiring (overseeing the investment managers) ?
4.What is the investment experience/knowledge of the people making the hiring decisions ?
Does anyone know the answers to these questions ?
It will be very interested getting the answers to these questions.
I'm waiting...
I heard at council we have one of the highest liability for employee - compare to some other communities by a factor of 2 or more - why is this?
Greg also what do you propose cutting from the budget? Since you are also a citizen here let me hear you opinion on what fat there is in the budget?
Do you think it is fair the Art Center is renting a building on the lake for $1 a year?
Greg,
Thank you and your colleagues for your service to the Evanston community.
However, I must vote NO for the following reasons :
1. Who is accountable for the current situation ? I have seen and heard a lot of finger pointing, but I am not aware of anyone who has adequately identified who is accountable and why we are in this situation.
2. What is our plan ? The city has not submitted a thoughtful, and comprehensive plan to address this issue - a haphazard piecemeal approach does not seem sensible
3. where is the creative thinking ? i hear raise taxes or cut services - has ANYONE considered investing our pension assets more appropriately ?
Until serious and thoughtful information, discussion, and analysis is conducted, I Vote NO !!
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