Mattoon forced to cut ambulance services to pay for growing pension crisis

Communities across Illinois are being forced to cut local services and raise taxes to afford their pension payments, putting residents who rely on local government services at risk because of the inherent failures of defined-benefit plans.

The city of Mattoon, Illinois, is struggling with a public safety pension crisis. Its local police and fire pensions are less than half funded. And the city’s pension costs – which have nearly doubled over the past decade – are overwhelming local taxpayers’ ability to pay for them.

The city’s vital services are suffering as a result. Most recently, Mattoon was forced cut its fire department’s ambulance services to help make its annual pension payments.

And unfortunately, Mattoon isn’t alone. It’s just one Illinois community being forced to cut services in the face of ballooning pension costs.

Mattoon forced to cut local services

On July 18, the Mattoon City Council voted to end its public fire ambulance services in order to free up funds for its fire and police pensions.

In 2015, the city had to contribute nearly $3 million to its local pension funds, double what it had to contribute a decade ago.

But more taxpayer dollars have done little to stop Mattoon’s pension crisis from growing. The city’s unfunded pension debts have more than doubled over the decade, to nearly $42 million dollars in 2015 from $21 million in 2005.

Mattoon’s police and fire pension debts rise despite increasing taxpayer contributions

Mattoon police and fire unfunded pension liabilities vs. annual taxpayer contributions

The pension systems’ funding levels have fallen as their unfunded debts have grown.

Both of Mattoon’s pension funds have less than half the money they need on hand right now to pay out future benefits. Police pensions are just 47 percent funded and fire pensions are only 42 percent funded. If they were in the private sector, Mattoon’s local funds would have been declared bankrupt many times over by now.

The city’s crisis is further compounded by how few active members there are now paying into the systems compared with retirees taking money out.

In 2005, Mattoon had a near-even balance of retirees to active workers – 79 actives and 82 retirees.

By 2015, there were just 68 active police and fire workers contributing to the pension funds compared with nearly 100 retirees taking money out. That imbalance has only accelerated the fund’s decline into insolvency.

The downstate police and fire pension crisis

Unfortunately, Mattoon is not alone in having to deal with a burgeoning pension crisis.

Communities across Illinois are being forced to cut local services and raise taxes to afford their pension payments. Springfield has closed library branches and has threatened to lay off police officers. Peoria has added new utility taxes. Decatur has shut down its bookmobiles. And property taxes are growing across the state to pay for pensions – piling onto the highest property taxes in the country.

But higher taxes and service reductions haven’t fixed the local pension crisis. Illinois police and fire systems’ funding ratios have declined by more than 20 percentage points since 2000.

In all, local communities across the state are dealing with a collective $10 billion police and fire pension crisis. There are 651 individual police and fire pension funds outside of the city of Chicago. Today, those pension systems are collectively only 55 percent funded. And nearly 200 funds have less than half the money they need on hand today to pay out future benefits.

The collapse of Illinois’ downstate police and fire funds is overwhelmingly due to the simple fact that they are unmanageable, especially by local politicians.

Many of Illinois’ downstate police and fire pension funds continually fail to meet the assumed investment rates of return needed to meet their pension promises. Others have had to adjust their actuarial assumptions, further driving up costs.

But the biggest reason downstate pensions are struggling is the rapid growth in member benefits (accrued liabilities) over the past several decades.

The assumed benefits for police and fire workers have grown by more than 750 percent over the past 30 years, far faster than fund assets, the economy, inflation, the state’s population and taxpayers’ ability to pay for them.

With benefits growing so rapidly, even pouring hundreds of millions of additional taxpayer dollars – through cut services or higher taxes – into local pension funds has not been enough to keep them healthy.

The defined-contribution solution

Mattoon’s elimination of its ambulance services is just the latest example of the severity of the state’s local public safety pension crisis.

Residents who rely on local government services across the state are at risk because of the inherent failures of defined-benefit plans.

Many police and fire workers don’t have a secure retirement and there are some who are close to losing their retirements altogether.

And taxpayers are burdened with the highest property taxes in the nation partly to pay for a broken and bankrupt system.

The only way to begin an end to the local crisis is for cities to introduce responsible, manageable 401(k)-style plans for new workers going forward and optional plans for current workers.

State Sen. Dale Righter, R-Mattoon, has introduced a bill that creates 401(k)-style plans for state workers. His proposal can be expanded so all local government workers can gain access to 401(k)-style plans as well.

In addition, Righter’s proposal can work in conjunction with a law recently signed by Gov. Bruce Rauner requiring communities across Illinois to create 401(k)-style plans for their police departments. Local firefighters should be granted access to the same plans.

Creating 401(k)s for local workers will help stop the bleeding of local finances in cities such as Mattoon. But stopping the bleeding is only the initial step in dealing with the local pension crisis.

Communities will still struggle to grow unless the massive local pension debt they’ve built up is reformed as well. Solutions to reduce these debts include authorizing municipal bankruptcy, reducing benefits through collective bargaining, and making changes to the Illinois Constitution.