A bunch of articles about the situation in North Riverside where village officials have underfunded the firefighter pensions and are considering privatizing the fire department.
This article is from the Chicago Tribune:
North Riverside’s recent efforts to cure its pension-driven financial ills have little bearing on the question of whether the village violated state statutes by underfunding its police and fire pensions, a state Department of Insurance attorney said in a hearing Thursday.
The department summoned North Riverside officials to its Chicago office to explain why the village underfunded police and fire pensions by about $5 million from 2008 to 2012, paying nothing toward the funds in several of those years.
Village officials focused on the future in the hearing, presenting an unusual plan to save money by contracting with an outside company for firefighting services. A newly passed water rate increase will also help, officials said.
The village was one of at least six Illinois municipalities to receive letters from the Department of Insurance ordering the towns to pay more toward their pensions or face penalties. The letters include information about a new enforcement mechanism that will allow the state to force municipalities to pay more toward police and fire pensions starting in 2016. Department of Insurance officials said the hearing was held to determine whether the village violated state laws by underfunding the pensions. State law gives leeway for underpayment if municipalities can show “good and sufficient cause” for the underpayments.
“It seems they are taking many steps to move forward, but they haven’t explained why they didn’t take those steps earlier,” Department of Insurance attorney Amanda Kimble said in the hearing.
Kimble and the village argued their cases before a Department of Insurance hearing officer, who will make a recommendation to the department’s director about whether the village violated state statutes by underpaying its pensions. A recommendation is at least several weeks away, the hearing officer said.
North Riverside projects a budget deficit of $1.9 million for the coming fiscal year, $1.8 million of which is due to its pension obligations, village officials have said. Officials have said privatizing the fire department would save the village about $745,000 per year by reducing benefit costs and moving employees into 401k retirement plans. The North Riverside Firefighters Union Local 2714 has threatened to sue if village officials go through with the privatization plan, saying the union’s contractual agreements with the village would prevent privatization.
Village officials and firefighters union representatives both questioned the Department of Insurance’s focus on past underpayments instead of solutions for the future.
A 2013 letter from the department to the village noted the village paid nothing toward its fire pensions from 2009 to 2011 and paid only a fraction of what it should have in 2012, violating statutes requiring municipalities to meet payment schedules. The village underpaid its police pensions over the same period, the letter states.
Village officials have said they could not afford the pension payments because the economic recession reduced sales tax revenue, which makes up a large portion of the village’s revenues.
Kimble noted the village managed to make payments to the Illinois Municipal Retirement Fund — the pension fund for non-uniformed employees — during the years it failed to pay toward the police and fire funds.
The Illinois Municipal Retirement Fund already contains an enforcement mechanism like the one that will available for police and fire pensions in 2016, North Riverside Finance Director Sue Scarpiniti said at the hearing. For that reason, the village made payments to the municipal fund, she said.
Union officials also criticized the village for not making the required payments, but said the best solution for North Riverside residents is more likely to come from the negotiating table than from state enforcement actions.
The union’s latest contract with the village expired April 30. The two sides began a new round of negotiations June 24, union officials said.
This editorial is also from the Chicago Tribune:
North Riverside is a small town with a big problem: It can’t make its pension payments.
The west Cook County suburb of 6,700 people faces a $1.9 million budget deficit. One big reason for the gap is that it has to make a $1.8 million payment to its police and fire retirement funds. North Riverside doesn’t have the money.
The village can’t tax its way out of debt. It can’t borrow its way out of debt. It can’t wait for state lawmakers to fix the problem. It needs a solution, now.
In short, it is much like the city of Chicago and countless municipalities around the state. It is in trouble.
On Monday, the North Riverside Village Board voted 5-1 to contract with a private company to staff its fire department. It’s a creative answer — and not as risky as it might sound.
The city’s 12 firefighters and four lieutenants will keep their jobs at their current salaries with modest raises ahead, but they will work for Paramedic Services of Illinois, which already provides ambulance service for the village. The head of the fire department will still work for the village.
North Riverside officials say they will save more than $745,000 next year in lower costs for insurance, overtime, sick leave and pensions by shifting employees to the private company. The firefighters’ traditional pension plan will be frozen, and they won’t lose any accrued benefits. Going forward, they’ll have a 401(k) retirement plan, as so many private sector workers do.
North Riverside will save up to $4 million over the next five years through this deal, the village estimates. That will go a long way toward resolving the financial crisis.
Expect to see this kind of contract arrangement for essential services happen more often as local governments grapple with massive pension obligations and wait in vain for the Illinois legislature to provide them some relief. Cities and towns are suffocating under the pressure of those pension obligations. North Riverside’s firefighter pension fund has only 43 percent of the money needed to meet its obligations. The village didn’t make full payments in recent years as tax revenues lagged.
The village was prompted to act now by a state law that forces local governments to ramp up pension contributions under threat of having sales tax revenue and state funding diverted to the pension plans if they don’t comply. North Riverside received a warning last year from the state Department of Insurance. Earlier this month, Moody’s Investors Service downgraded North Riverside’s credit rating.
So the village has its answer. It’s a creative one. And we expect you’ll hear a lot of towns making the same decision in coming years. Nobody else is giving them an answer for their financial woes. They have to find one on their own.
This article is from the Washington Times (IL):
One of a number of Illinois towns struggling with increasing pension costs wants to save money by shifting control of its fire department to a private company – a rare move village officials argue is the only option because they can’t make any more cuts or raise taxes.
The village of North Riverside pitched the cost-saving proposal before state regulators Thursday at a Chicago hearing after being summoned for repeatedly shirking payments into its firefighter and police retirement funds. Mayor Hubert Hermanek estimates the village could save $700,000 annually by privatizing its fire department – a solution that some say could be tried more and more in coming years.
In 2016, state law requires cities to make required contribution increases so they’ll reach 90 percent funding by 2040. If cities don’t, the state will begin doing it for them by diverting grant money now used elsewhere directly into pension funds. Many cities have pushed off payments, and the Department of Insurance is meeting with some of the worst offenders to create a funding plan. However, the department can’t approve a privatization plan.
“Considering the onerous labor mandates that have been approved by the state and imposed on local government, along with the heavy financial burden created by the pension obligations, I wouldn’t be surprised to see more communities exploring alternative service delivery options,” Joe McCoy, legislative director for the Illinois Municipal League, said.
Under North Riverside’s proposal, the fire department would be folded into the village’s contract with Paramedic Services of Illinois, the company that provides its ambulance service. Hermanek said all 16 current firefighters would be offered employment under the five-year contract with the company.
Privatized municipal fire departments are somewhat rare in Illinois. Lincolnwood, a village in Cook County, hired a private company to operate its fire department in 1990 after ending a contract with the city of Chicago.
But firefighter union officials say privatized fire departments provide lower service levels to residents because companies are more interesting in turning a profit. Pat Devaney, president of Associated Fire Fighters of Illinois, says North Riverside officials should be held accountable.
“Anybody who has done even just a small amount of research into the way the politicians in North Riverside have managed their finances would be outraged.” Devaney said. “Here’s the plan – let’s blame the firefighters for it. It’s disgusting.”
Records obtained by The Associated Press show North Riverside officials didn’t put any money into its firefighter or police pension funds in multiple recent years. Overall, it’s come up more than $5 million short between 2008 and 2012. But village officials contend the shortfall can be attributed to a loss in sales tax revenue from the North Riverside Park Mall during the economic downturn and an inability to raise property taxes.
Still, village officials have hailed their plan as a “bold and innovative” way to solve a problem facing many Illinois towns.
“The good news is that we have an excellent solution, one that allows us to keep the strongest emergency and fire protection services in place and avoid layoffs without having to sacrifice other village services,” North Riverside village attorney Burt Odelson said in a statement.
From the Landmark.com:
The attorney representing North Riverside’s firefighters on Thursday said that if the village insists on moving ahead with its plan to privatize fire protection services, the union would fight the attempt in court.
“They can’t do this,” said J. Dale Berry, who represents North Riverside Firefighters Union Local 2714.
Berry said state law prohibits municipalities from hiring public safety officers who have not undergone rigorous civil service testing to which firefighters and police officers submit.
Firefighters at a June 24 contract negotiation session proposed saving money by beginning to train its firefighters as paramedics and eliminating the need for North Riverside to pay a private company for paramedic services. The plan came with a proposal to hire three firefighter/paramedics to get the ball rolling.
The village maintains that such a solution only increases its pension obligations. But firefighters also rejected the village’s privatization proposal, which was offered at the same meeting.
But if the village insists on moving forward with its plan to obtain firefighter services from Paramedic Services of Illinois (PSI), Berry said that matter will end up in court.
North Riverside firefighters are currently working without a contract. Their most recent deal with the village expired April 30.
Berry’s statements came following North Riverside’s hearing Thursday afternoon before the Illinois Department of Insurance. The village faces draconian sanctions for failing to fully fund its police and fire pension obligations over more than a decade.
Information entered into the record at the hearing showed that North Riverside failed to contribute anything to its pension funds in six of the past 14 years, and in six other years failed to contribute the 90 percent threshold the state requires.
A state law allows the Illinois comptroller, beginning in 2016, to deduct funds from other state revenues, such as sales taxes and other shared taxes, to force the village to comply with pension funding laws.
Since sales taxes and state shared taxes are the lifeblood that funds the majority of North Riverside’s general operations, such a move would have deep impacts on village services.
During the nearly two-hour hearing at the Department of Insurance’s office in downtown Chicago, North Riverside laid out its reasons for why it failed to fund pensions sufficiently as well as its plans to fund them in the future.
Among the bombshells dropped during the hearing was news that North Riverside would seek a property tax increase from voters in November in order for the village to make its required contributions for police pensions in the future.
According to North Riverside Village Attorney Burt Odelson, the referendum will essentially ask voters to approve tripling what local property owners pay in real estate taxes to the village.
Because the village has frozen its property tax levy for a quarter of a century, North Riverside’s take of homeowners’ property tax bills is a mere fraction of the total — on average about $250 per residence. A successful referendum would make that about $750, said Odelson.
In addition to the referendum, there will be cuts to services. North Riverside Finance Director Sue Scarpiniti, who testified at Thursday’s hearing, said the village board is looking to make cuts to the budgets of the police and other departments.
A schedule of those cuts provided to the Landmark on Friday indicates that the village board will seek to cut police overtime by $100,000. In addition, the board plans “salary reductions” for the code enforcement, administrative and public works departments totaling $90,000. On top of that, the village is asking departments to trim an additonal $192,000 from their combined budgets for the 2014-15 fiscal year.
On the revenue side, the village is projecting to collect $100,000 in fines related to the red light camera recently installed at Harlem Avenue and Cermak Road.
The cuts, water rate increases, the property tax increase and privatizing the fire department would save the village about $1.1 million in fiscal year 2014-15, which began May 1. But that’s still well short of the $1.9 million deficit the village projects in its operating fund during that period.
The difference would be made up by spending cash reserves, said Scarpiniti.
A second bombshell revealed at Thursday’s hearing was news that on June 20 Moody’s Investors Services, which rates the credit worthiness of municipalities, downgraded North Riverside three levels from A1 to Baa1 and assigned the village a negative outlook. Moody’s pointed specifically to the village’s pension situation, its unfunded post-employment benefits liability and its dependence on sales taxes for revenue as reasons for the downgrade.
Both Odelson and Berry urged the Department of Insurance not to impose a solution — in particular the deduction of sales taxes and state shared taxes for pension purposes — which would make it more difficult for North Riverside to deliver services to its residents.
Berry said that while North Riverside’s level of pension funding may not be much different than many municipalities in Illinois, “what they did that was provocative was that they didn’t make any payments” for six years.
Louis Butler, the Illinois Department of Insurance deputy general counsel who presided over Thursday’s hearing, indicated it would be at least two weeks before he submits a recommendation regarding possible sanctions to the director of the department.
thanks Dan
