East St. Louis police and fire pension fund crises risk state intervention

East St. Louis’ police and fire pension funds experienced large funding shortfalls in 2016, putting the city at risk of revenue garnishment from the state comptroller’s office.

In one of Illinois’ poorest communities, two local pension funds are quickly approaching virtual insolvency. East St. Louis’ police and fire pension funds are among the worst funded in the state. And because the city has missed its required pension contribution, East St. Louis’ city revenues are at risk of state garnishment.

East St. Louis’ fire pension fund has only 13 cents on hand for every dollar owed in future benefits, according to a 2017 biennial report by the Illinois Department of Insurance, or DOI.

The DOI report shows East St. Louis’ fire pension funding ratio fell more than 10 percentage points from 2012-2016. The city has struggled to make payments toward its fire pension fund with city contributions declining more than 67 percent over the same time period. As noted in a recent Wirepoints analysis, East St. Louis in 2016 contributed only $801,797 to its fire pension fund, far short of the city’s $3,111,226 required contribution, a 74 percent shortfall.

The city’s police pension fund is 38 percent funded. Like the fire pension fund, the city fell short of its required contribution to the police pension fund by 66 percent in 2016.

While both pension funds have spiraled toward virtual insolvency, average police and fire salaries have gone up. From 2012-2016, average fire employee salaries went up more than 15 percent, while average police employee salaries went up 13 percent over the same period, according to the DOI’s report.

As of 2016, East St. Louis’ police and fire pensions faced worse funding levels than even Harvey, where city tax revenue has been intercepted by the state comptroller’s office and rerouted to the city’s pension funds, resulting in layoffs for dozens of police officers and firefighters.

Harvey’s fire pension fund only had 22 cents on hand for every dollar owed in future benefits, while its police pension fund was only 51 percent funded in 2016.

East St. Louis is in a precarious position. By failing to make its total required pension contributions, the city risks garnishment of its tax revenue by the state. Up to two-thirds of city revenues could be seized by the state comptroller’s office to pay for East St. Louis’ police and fire pension funds.

East St. Louis’ situation is not unique. Municipalities across Illinois are facing a difficult choice: Make increasingly larger payments to pension funds or risk state invention. Local leaders often turn to tax hikes to make up the difference, but with Illinois’ property tax rates already among the highest in the nation, local officials risk shrinking the local tax base as residents opt for greener pastures.

Revenue for East St. Louis’ pension funds will be hard to come by. Nearly 45 percent of East St. Louis residents live below the poverty line, and homeowners face an effective property tax rate of nearly 6 percent, according to a property tax analysis by the Belleville News-Democrat.

Real solutions to the pension crises plaguing East St. Louis and other local governments will require bold reforms in Springfield. Otherwise, higher taxes, reduced services and even the possibility of state garnishment of local revenue will continue to hang heavy over Illinois communities struggling with bankrupt pension funds.