Police & Fire Pensions are only part of DeKalb’s liability story

The Better Government Association has just rolled out a statewide police and fire pension database. It tracks public safety pensions for every municipality, township, and special district (e.g., fire protection district) that have one or both types of pension funds.

According to this database, DeKalb’s fire pension showed a net liability of $42.7 million and a 39.21% funding ratio “as of 2016.” At the same point in time, the police pension fund had a net liability of $34.4 million and a funding ratio of 48.77%. The combined net liability, then, was a bit over $77 million.

I’ve checked the BGA numbers against the city’s latest annual financial report to make sure they’re in the same ballpark, and they are.

What the BGA database doesn’t tell you about is DeKalb’s other long-term liabilities related to retirees. One is the Illinois Municipal Retirement Fund (IMRF) — yeah, it’s not 100% funded as you might think. The city’s latest reported IMRF net liability is $9.4 million and funding at 83.2%.

Another, as discussed here a few months ago, is the Other Post-Employment Benefits, which is a defined-benefit retiree health insurance plan. OPEB — which our financial consultants have twice urged us to dump in favor of a defined-contribution PEHP plan* — has an unfunded long-term liability of $23.9 million and a funding ratio of 0% because the city doesn’t fund this plan in advance.

Audited numbers for 2017 should come out in May. Meantime, we’re looking at unfunded retirement-related liabilities of $110 million.

*City employees hired since 2011 do participate in a PEHP instead of OPEB.

BONUS: DeKalb’s pension funding ratios as of 1999 (as reported in the fiscal 2004 financial report):

IMRF: 109.49%
Police: 88.52%
Fire: 62.13%

OPEB: DeKalb’s unfunded liability you’ve probably never heard of

***Updated 12/21, via asterisk, to clarify what’s going on with the fiscal 2016.5 numbers in the narrative, and why these numbers are not in the chart. FYI, the post is probably also easier to read if you distinguish between plan retirees (who are participants and beneficiaries), beneficiaries (who may be retirees or spouses/dependents of retirees), and participants (who may be active employees, retirees, or beneficiaries who are neither).***

I don’t generally gush over DeKalb’s choices of consultants, but I believe EPI was worth every penny – both times – because of their plain talk about our financial situation and the state of city operations.

Too bad DeKalb didn’t take some important advice.

One of the harsh realities was and is the OPEB, which stands for Other Post-Employment Benefits. OPEB is a defined-benefit, comprehensive health insurance plan for City of DeKalb retirees who participate in a pension plan (i.e., full-timers who meet years-of-service requirements). Compared with the pension plans, OPEB is not very highly regulated. There’s no trust fund established, and since the city doesn’t have to pay more than a required annual contribution, it doesn’t. There are no reserves for the future.

This was the picture when EPI came on the scene in 2009:

• Depending on the retirement age of the labor contract/pay plan that applied, some city workers qualified for benefits as early as age 50.
• Employees did not contribute to the OPEB until retirement.
• OPEB covered the retiree for life.
• Some plans had spousal and/or dependent benefits.
• The city at that time was paying approximately 87% of the premium for each retiree.
• DeKalb’s contribution as sole employer of the plan came to about $1 million per year.
• The unfunded liability reported for fiscal 2008 was $29.4 million, which was more than the liability for any city pension fund at the time. Continue reading OPEB: DeKalb’s unfunded liability you’ve probably never heard of

Pension Plan Membership as a Factor in Jump of Net Pension Liability

DeKalb’s latest Comprehensive Annual Financial Report (CAFR) is out. It covers Fiscal Year 2016, which ended June 30, 2016. The big news is the net pension liability.

Public safety expenses related to the operations of both the Police Department and Fire Department accounted for the largest share of expenses at $33,400,660 or 50.1% of the total. This represents a 50.1% increase from the FY15 total of $22,259,920. This increase was due primarily to the increase in the net pension liability for police and fire pension plans.

Yes, the city’s net financial position was reduced in one year by $12.4 million, and an increase in long-term liabilities accounts for about three quarters of the loss.

We can attribute a combination of factors in the increase in liabilities, not the least of which were investment returns coming in well under the actuarial assumption of 7.5%. However, today I’d like to focus on the growth of membership in the public safety pension plans, because it’s shocking to see them escalate like this while DeKalb itself is shrinking.

[easychart type=”vertbar” width=”420″ title=”Public Safety Pension Funds Membership” groupnames=”PD Members, FF Members” valuenames=”04, 05, 06, 07, 08, 09, 10, 11, 12, 13, 14, 15, 16″ group1values=”91, 93, 94, 97, 101, 100, 98, 99, 101, 107, 108, 111, 115″ group2values=”92, 97, 98, 105, 105, 105, 104, 102, 106, 107, 113, 116, 116″ minaxis=”90″] Continue reading Pension Plan Membership as a Factor in Jump of Net Pension Liability

New Annual Financial Report is Out

City of DeKalb released its Comprehensive Annual Financial Report (CAFR) for fiscal year 2015, which ended June 30.

I’m sure city staff will also release the Popular Annual Financial Report (PAFR) as they did last year. It’s a dumbed-down version of the CAFR that nobody asked them to compile, but they get some sort of warm-fuzzy award for it, so it’s all good.

Let’s update some charts. First, the hiring news:

[easychart type=”line” width=”420″ title=”Full Time Equivalent Employees by Fiscal Year” groupnames=”FTEs” valuenames=”01, 02, 03, 04, 05, 06, 07, 08, 09, 10, 11, 12, 13, 14, 15″ group1values=”224, 231, 240, 237, 250, 254, 261, 262, 249, 241, 211, 209, 217, 225, 234″ minaxis=”208″]

The hiring spree is still on.

The General Fund budget for personnel expenses this year is $26.9 million, a rise of 2% over last year and a net increase of $500,000 in this budget category. There are a couple reasons why the increase was “only” 2%. The primary reason is that a chunk representing another 2% was sent over to the Water Fund for Water to pay. They’ve also succeeded in reducing health care costs (something I’d like to compliment them on sometime, if only they’d stop annoying me for a minute with the Bozo no-nos).

But wages and pension costs are both increasing well above inflationary levels. I anticipate they will have to come up with $500,000-$700,000 more for this budget category next year.

In other words, despite the rosy picture staff will paint next month in an effort to persuade the city council to hire a human resources director, the council should no way, no how approve any more hires and, in fact, should let attrition do its work for awhile. Continue reading New Annual Financial Report is Out

Post-Recessionary Trends & Responses

The City of DeKalb released its FY2014 Comprehensive Annual Financial Report last month, and as usual there’s plenty to digest. A large part of this report draws data from supplemental reports found in the back of the CAFR, some of which track the past 10 fiscal years and are therefore useful for understanding the lingering effects of the Great Recession on the local economy.

First up, I’ve prepared a chart of taxable sales. Retail sales taxes make up more than 40% of DeKalb’s operating budget — no other single revenue category comes close — so sales and the taxes they generate are important indicators of economic health.

The advantage of looking at the sales themselves instead of the tax revenues is that you don’t have to account for sales tax hikes, abatement deals and other “noise” in the data.

[easychart type=”vertbar” width=”420″ title=”DeKalb’s Taxable Sales in Millions” groupnames=”Locally Taxable, State Taxable” valuenames=”’04, ’05, ’06, ’07, ’08, ’09, ’10, ’11, ’12, ’13” group1values=”356, 377, 405, 415, 407, 367, 385, 384, 379, 381″ group2values=”514, 540, 582, 594, 590, 528, 542, 535, 529, 523″ minaxis=”355″]

Of course there’s a lot of overlap between state and local sales, but showing them both underscores the trend, which is this: Taxable sales have stabilized since 2009, but they’ve more or less stabilized at 2005 levels.

And it’s not just retail sales that have stagnated. DeKalb’s share of the state income tax is climbing, but so far has only made it back to 2008 levels. Utility tax revenue totals for FY2014 were less than FY2012’s.

Water sales were down by 5.2%. If you think about the combo of utilities and water falling, it seems likely that it can’t all be about plugging leaks and conservation. DeKalb’s likely still losing population.

City government, however, is bucking that trend. Continue reading Post-Recessionary Trends & Responses

Sifting Out What’s Important to the Property Tax-Pension Funding Discussion

DeKalb city staff have come up with a proposal to raise the city’s property tax levy by 10%. Daily Chronicle reports that the council gave initial approval on Monday.

Here’s how the city is presenting the recommendation:

City staff want to move away from the current practice of using the general fund to pay for pension obligations property tax revenues don’t cover. Finance Director Cathy Haley explained property taxes currently fully fund police and fire pension obligations and 97 percent of Social Security and Medicare costs. But only 26 percent of the city’s costs for the Illinois Municipal Retirement Fund comes from property taxes, leaving the general fund to cover more than $720,000.

A 10 percent increase would bring in an additional $495,000, fully fund Social Security and phase in fully funding IMRF obligations through property taxes, Haley said.

Council will furthermore consider the recommended hike in a joint meeting with the Financial Advisory Committee tonight.

The most important thing to understand is that the discussion is not just about setting the levy for the upcoming tax year, but about committing to a significant policy change in how the city chooses to fund its pensions — possibly for years to come. Continue reading Sifting Out What’s Important to the Property Tax-Pension Funding Discussion

Pension Discussion Reveals Council’s Dysfunction

I am loving the budget talks, mostly. They make me feel like the city is in much better hands than it used to be.

For example, in response to a question from a Financial Advisory Committee member last Saturday, the city manager confirmed: Revenues that for the previous year had been spent out of (off-budget) balance sheet accounts have all been returned to the budget.

We probably dodged a bullet, and by that I mean city administrators have reversed a corrupt trend that eventually could have rendered meaningless the annual DeKalb budget.

But we still have the same council.

Fifth Ward Alderman Ron Naylor and 3rd Ward Alderwoman Kristen Lash contended the city has held the line on property taxes because the dollar amount the city collects has not changed much in previous years.

“When I look at it from year to year and see that I’m paying the same amount from year to year, that’s not an increase,” Lash said. “I’m paying the same amount.”

David Jacobson, 1st Ward alderman, contended “holding the line” could be seen as a tax increase considering the drop in property values.

Jacobson is right, but in my opinion he is not going far enough. We should figure out how much the conscientious underfunding of the pensions during the past decade has cost us.

You see, every dollar we short the pension funds is a dollar that can’t be invested. I don’t know about you, but my assets have performed very well the past few years — it’s a shame that our pension funds couldn’t have maximized their earnings in this market.

That’s not to say that underfunding is the only problem with the public pensions. It’s not. But a council truly serious about “holding the line” for our sake would be doing a bit less self-pleasuring and a lot more work toward a solution.

Related:

Painting a Picture of DeKalb’s Pensions

Painting a Picture of DeKalb’s Pensions

First, let’s update our pension percentage-funded chart with the FY2013 numbers. These are from Comprehensive Annual Financial Reports (CAFRs).

[easychart type=”line” width=”420″ title=”Yearly Funding of Pensions by Percentage Funded” groupnames=”IMRF, Police, Fire” valuenames=”’99, ’00, ’01, ’02, ’03, ’04, ’05, ’06, ’07, ’08, ’09, ’10, ’11, ’12, ’13” group1values=”101.47, 109.49, 111.34, 107.18, 98.78, 82.83, 72.48, 73.17, 77.08, 80.46, 60.69, 62.50, 54.54, 57.73, 59.66″ group2values=”88.52, 86.68, 73.96, 66.09, 65.26, 66.86, 67.12, 67.24, 71.63, 64.38, 55.91, 59.59, 64.99, 55.06, 53.06″ group3values=”62.13, 57.64, 57.03, 52.85, 51.19, 53.21, 51.64, 49.44, 50.20, 46.16, 40.39, 42.59, 45.77, 41.65, 41.95″ minaxis=”40″]

City of DeKalb is quick to tout its balanced budgets and its growing “reserves.” But if DeKalb is doing so well, why isn’t it making up the pension-funding ground it lost during the past two recessions? Continue reading Painting a Picture of DeKalb’s Pensions

DeKalb’s Pension Picture Updated

I’ve added FY2012 numbers to the set of charts you’ll find in DeKalb’s Pension Funding Progress. They come from the latest Comprehensive Annual Financial Report (CAFR).

[easychart type=”line” width=”420″ title=”Yearly Funding of Pensions by Percentage Funded” groupnames=”IMRF, Police, Fire” valuenames=”’99, ’00, ’01, ’02, ’03, ’04, ’05, ’06, ’07, ’08, ’09, ’10, ’11, ’12” group1values=”101.47, 109.49, 111.34, 107.18, 98.78, 82.83, 72.48, 73.17, 77.08, 80.46, 60.69, 62.50, 54.54, 57.73″ group2values=”88.52, 86.68, 73.96, 66.09, 65.26, 66.86, 67.12, 67.24, 71.63, 64.38, 55.91, 59.59, 64.99, 55.06″ group3values=”62.13, 57.64, 57.03, 52.85, 51.19, 53.21, 51.64, 49.44, 50.20, 46.16, 40.39, 42.59, 45.77, 41.65″ minaxis=”40″] Continue reading DeKalb’s Pension Picture Updated

DeKalb’s IMRF Contributions and Their Budget Impacts

Putting together DeKalb’s pension picture has been like a forestry hide-and-seek. Facts are the trees and while facts have been examined, there’s often an underlying feeling that the ecosystem has not yet been adequately described. So I keep going back in.

One “specimen” whose significance I failed to fully appreciate earlier is the shortfall between what is collected in city property taxes and the annual required contributions to the three pension funds. Unlike the State of Illinois, DeKalb faithfully makes yearly contributions; and if the property taxes don’t cover them, the city must free up additional revenues from the General Fund.

So far, such shortages appear to have fallen exclusively on IMRF and below is a piece of that picture.

[table id=65 /]
Continue reading DeKalb’s IMRF Contributions and Their Budget Impacts