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Streator City Council will hear plan to help fund pensions

Talk will explore using bonds to reduce obligations

Tom Gavin, Baird & Company
Tom Gavin, Baird & Company

The Streator City Council will hear this week the pros and cons of borrowing money to assist in police and fire pension costs between now and 2040.

The discussion is scheduled at 1:30 p.m. Tuesday at City Hall, 204 S. Bloomington St.

The city's underwriter Baird & Company has prepared a report and has worked with the city's actuary Foster & Foster in bringing together findings. Tom Gavin, the managing director of Baird's Chicago office, will make the presentation.

The City Council is looking at selling bonds at an interest rate lower than the investment rate of return. If the council is succcessful at doing this, the additional funds will reduce the long-term obligation.

If the city is able to get a 6.5 percent rate of return, it will generate a total gross savings of $12.5 million, which amounts to an annual savings range starting around $20,000 and over time growing to $1.4 million.

By funding the Fire Pension Plan with bond proceeds, it will allow the fund's assets to grow above $10 million, which gives it the ability to invest and gain more.

If selling bonds come in at a higher interest rate than investment rate, then the City Council runs the risk of losing money. There are other risks that will be talked about, including how investing a large dollar amount all at once could result in bad market timing.

The presentation also will include information about the city's historical practices of funding public safety pensions, how the cost curve changes between now and 2040 if bonds are issued and how the cost curve changes if staffing levels change. The City Council has hired part-time community service officers who do not pay into the pension as a way to potentially reduce firefighter staff through retirements and natural turnover. The city did not rehire a firefighter when Joe Scarbeary retired from the fire department.

In November, the City Council decided to use roughly $191,000 in additional funds from its unrestricted reserves to make up the difference in pension payments for 2019 and fund it at 100 percent. That decision will be reviewed this summer by the council to make sure they are in a good enough financial position to continue with the plan.

When the council made this decision, they decided to use this year to explore the potential for borrowing money to get greater return on investments or to seek other revenues for funding the public safety pensions in the future.

"We need to know more about what the risks are, but we need to explore those options and hear from those experts and do it in a study session," Mayor Jimmie Lansford said at the time.

Actuary Jason Franken, of Foster & Foster, has said the city runs the risk of having its unfunded liability grow if it doesn't continue to fund them at 100 percent. The city is required to levy taxes for police and fire pensions at least at the 90 percent level. 

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