Carbondale employees see raises despite deeply underwater pension funds

As local leaders reach an agreement with the city’s public safety unions, the retirement security of Carbondale’s police and fire workers slides further out of reach.

A pair of recently approved labor contracts might serve as a reminder that the retirement funds for Carbondale’s public safety workers are anything but secure.

Carbondale City Council voted unanimously May 8 to approve new employment contracts with city workers represented by the Illinois Fraternal Order of Police and the International Association of Firefighters for fiscal years 2019-2021. One councilman was absent from the vote. The unions’ previous contracts with the city expired April 30.

In keeping with many government-employee labor agreements across Illinois, the terms of the contracts might benefit Carbondale’s public safety workers in the short term, but the long-term stability of the city’s police and fire pension funds remains in jeopardy.

New labor agreements feed old problems

The contracts for both departments include automatic 2.25 percent pay increases for the first two years, before elevating to a 2.5 percent pay raise for the third and final contract year. The fire workers’ contract also comes with an enhancement in “callback minimum overtime,” providing that the minimum amount of overtime pay awarded to a worker be equivalent to four hours of overtime worked. Previously, this minimum amounted to two hours of overtime, according to city council agenda minutes.

Unfortunately, salary increases and supplemental pay enhancements like these are likely to further imperil Carbondale’s already-underfunded public safety pensions.

Because public-sector employees’ eventual pension payouts are calculated based on their end-of-career earnings, every increase in compensation boosts workers’ retirement incomes. And as the promises of Carbondale’s pension funds have outgrown taxpayers’ ability to pay, uncertainty looms over the future retirements of Carbondale’s fire and police workforces.

Pension funds in peril

The city’s fire pension fund is in especially bad shape. As of 2016, the fund had less than 48 cents on hand for every dollar owed in retirement benefits, according to a 2017 biennial report by the Illinois Department of Insurance, or DOI.

A recent Wirepoints analysis underscores the degree to which this shortfall has grown deeper over time. In 2003, Carbondale’s fire pension fund possessed 64 cents for every dollar owed. That means from 2003-2016, funding levels for the city’s fire pensions dropped by more than a full percentage point per year on average.

Carbondale’s police pensions haven’t fared much better, with less then 50 cents for every promised dollar. And while this is a minor improvement from its 46 percent funding level in 2012, the broader trend conveys a long-term decline. Since 2003, the Wirepoints analysis shows, the police pension funding level has dropped eight percentage points.

Structural fiscal woes

Despite the worsening pension shortfall, however, average fire and police department salaries in Carbondale have grown by more than 11 percent and 12 percent, respectively, since 2012.

Unfortunately, constitutional prohibitions on reducing pension obligations, coupled with the outsized collective bargaining power Illinois labor unions wield, municipalities are left with few options but to slash services or hike taxes.

In 2016, Carbondale City Council passed a 4 cent motor fuel tax hike as well as two new 4 percent taxes on food and beverages and packaged liquor. Facing a backlash over the new consumption taxes, local leaders lowered the food and beverage tax to 2 percent just months later while expanding its reach. The 4 percent packaged liquor tax remained in place.

This came just one year after the city hiked its home-rule sales tax to 2.5 percent, the third increase on the tax since 2008. On top of the sales taxes levied by the state of Illinois and Jackson County, in which Carbondale is located, Carbondale residents shoulder a combined 9.75 percent sales tax – among the highest in the nation.

Taxpayers’ growing burden

Carbondale taxpayers contributed slightly more than $1 million into public safety pensions in 2005, according to a 2015 biennial report by the Illinois Department of Insurance, or DOI. But by 2016, taxpayer funding for public safety pensions had more than doubled – to nearly $3 million, DOI’s 2017 pension report shows.

Taxpayers’ share of total revenues collected by Carbondale’s public safety pension funds has grown significantly, while that of public safety workers has shrunk. In 2005, contributions from taxpayers made up roughly 78 percent of fire pension fund revenues, while employee contributions made up 22 percent. By 2016, this disparity had widened, with taxpayers covering more than 83 percent of pension fund revenues and employees contributing 16.5 percent.

The trend for Carbondale’s police pension fund looks similar: 70 percent of revenues the fund collected in 2005 came from taxpayers, while future pensioners shouldered just short of 30 percent of the burden. This gap, too, grew considerably over the years. In 2016, taxpayers contributed 84.5 percent of revenues, while city employees’ share had been practically halved to just roughly 15 percent.

Ripe for reform

Far from furnishing the city’s public safety pensions with healthy funding levels, sky-high taxes in fact risk driving the very taxpayers who fund such pensions away.

At the state level, lawmakers must introduce aggressive reforms to disentangle municipalities from the unwieldy mandates imposed on them by Springfield.

This would begin by allowing local governments to implement a 401(k)-style alternative to pensions, thereby protecting future government-worker retirements from insolvency. Additionally, lawmakers must give taxpayers a voice in the collective bargaining negotiations that affect their wallets. In line with Illinois’ neighboring states, lawmakers should restrain public-worker unions’ extreme power advantage.

By establishing bold reforms like these, state lawmakers would pave the way for municipalities to secure public-worker retirements while providing residents the tax relief they desperately need.