The Streator City
Council continues to assess strategies to ensure fire and police retirees receive their pension benefits and reduce future obligations. Their latest idea is issuing municipal bonds.
The issuance of the bonds would help the city come closer to funding 90 percent of all pension funds by 2040, as required by the state.
City Manager Scot Wrighton described the possible solution to the City Council on Tuesday that involves the city issuing general obligation bonds to make a large advance payment to its public safety pension funds.
If the large payment is made, next year’s actuarial funding calculation would decrease. The city would then add the cost of serving the bonds’ principal and interest payments to the annual tax levy.
“What this basically does is supplant the levy for pensions with a levy for bond and principal and interest payments instead,” Wrighton said. “If the interest cost of the bonds is less to service than the interest, they can gain by having the money in advance and then it could be a trade-off that works better for the pension board and therefore for the financial condition of the pensioners and the city.”
The compounded interest from the proceeds of the bond would add to the pension fund and would also improve predictability as currently the pensions are recalculated every year.
Councilman Joe Scarbeary, also an active member of the Streator Fire Department, gave a presentation explaining the plan to council members and explained the mayor of Berwyn spoke highly of the strategy.
“He said if you’re not doing it, you’re crazy. It’s free money,” Scarbeary said.
Scarbeary said even if the city considered replacing the fire department with a full volunteer staff, which was not under discussion during the meeting, the city still owes retirees.
“The city still is $9 million behind on fire and $11 (million) on police and the year 2040 is coming,” Scarbeary said.
Councilman Ed Brozak reminded council the city has “never missed a payment” and board documents stated the underfunding was due to increased benefit levels of the state and poor investment returns.
Brozak said one concern was the city’s bonding limit, which may leave it without room for future projects.
Wrighton confirmed non-home rule cities have a debt limit of around 8.625 percent of their equalized assessed value minus existing debt and other variables. The city would be unable to go over the limit without a referendum.
Wrighton also explained the strategy brings its own share of risk as poor investment could lead to a low rate of return.
The City Council planned to forward the potential strategy to Foster & Foster of Naperville, the Streator fire and police pension board actuary, to fully examine the pros and cons.
Council members will continue to assess other strategies at future meetings.