Galesburg among cities trying to dig out from under mound of pension debt
Galesburg has a money problem, but it's not alone.
Like many other Illinois municipalities, the city of more than 30,000 people is struggling with rising pension costs -- something Elisha French saw the extent of after becoming Galesburg's treasurer in April.
“The biggest thing that Galesburg has an issue with is the rate of return,” French told the West Central Reporter.
French cited actuarial tables showing unfunded liabilities of $16 million for firefighters and $15 million for police in 2012. Now those same actuarial tables show the firefighter figures have topped $30 million and the police numbers are more than $27 million.
There is a simple reason that these financial liabilities are pushing through the roof, French said: The actuarial tables assume a rate of return of 6.75 percent, something extremely hard to come by in an economy where base interest rates are relatively near zero.
French said the city currently gets about 3.7 percent for its fire fund and 2.3 percent for its police fund.
“First and foremost, we have to find some way to get a better rate of return,” French said. “We’re beginning to explore some options.”
French said Galesburg is researching what other municipalities do to get higher rates of return on investments, but the General Assembly limits the ability of municipal pension funds to enter certain kinds of high-risk investments that offer higher rates.
“We’re all hamstrung by the same legal issues,” French said.
A "tier 2" plan negotiated by the state will eventually decrease pension liabilities, he said, but that relief won't be evident until around 2042.
“Until we hit that point, that cost is going to skyrocket,” French said.
The state does allow municipalities to fund pensions at a rate lower than 100 percent, but that's just kicking the can down the road, he argued.
“It's to (the municipality’s) detriment,” French said. “It just doesn't work out long term.”
Instead, French suggested municipalities could try to make fire and pension systems more like the Illinois Municipal Retirement Fund for non-uniform employees, which he characterized as “well-funded.”