The city of Harvey last week made huge cuts to its police and fire departments after the state diverted more than a million dollars directly into its underfunded pension systems.
Under a law passed several years ago, the Illinois comptroller is required to divert state money directly to pension funds that have been shorted by municipal leaders, should the funds request it.
While the consequences in Harvey are dire, a new report finds that city is hardly alone. Around the state, police and fire pensions have had an average funding ratio of 60 to 67 percent for the last decade.
“Harvey is one of the first municipalities to have revenue intercepted by the Comptroller; however, other municipalities may soon follow,” writes the report’s author Amanda Kass, who is with the Center for Municipal Finance at the University of Chicago Harris School of Public Policy. “Though the pre-2011 law did require pension contributions, it lacked an enforcement mechanism, and so in practice municipalities could–and did–significantly underfund their pension systems.”
Analyzing Department of Insurance data for 632 police and fire pension funds in Illinois, Kass found 71 in which municipalities contributed 50 percent (or less) of the amount specified by the DOI.
“What my analysis doesn’t address, however, is why municipalities’ actual contributions were significantly less than what DOI said they should have paid,” Kass writes. “Like the State of Illinois, they may have been using revenue for their operating budgets instead of properly funding their pensions. Importantly, the new pension funding enforcement mechanism will not resolve any underlying structural issues that may have led to the pension underfunding in the first place.”
Kass joins Chicago Tonight for a conversation.