Chicago Suburb, Strapped With Pension Debt, Considers Privatizing Pension System

Illinois flagThe Chicago suburb of North Riverside is straddled with pension debt, and it’s not about to get better – since the town hasn’t made its required pension payments, the state will likely withhold sales tax revenue from the suburb starting in 2016.

That’s why North Riverside is considering privatizing its fire department – a move that would rid the city of future pension costs.

From the Chicago Sun-Times:

North Riverside says its contract with firefighters expired in April and it seeks to privatize its fire protection services, turning current firefighters into employees of a private company, PSI, which has provided paramedic services to the village for decades.

Current North Riverside firefighters would work for PSI at their current salaries and with their current health insurance plan. They also would keep already-accrued pension benefits but would be folded into a 401-(k) program at PSI that would include an employer-matching contribution. Odelson says privatizing fire services will save the village in insurance, overtime, sick time and pension costs for firefighters who make more than $200,000 in yearly salary and benefits.

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The state will begin garnishing sales tax revenue from North Riverside in 2016 if it doesn’t catch up on pension debt. The state can withhold all of that revenue in 2018, says Burt Odelson, North Riverside’s attorney. “When that happens,” he said, “North Riverside will no longer be able to pay their bills.”

North Riverside is a bedroom community without the home-rule power to raise taxes without voter approval. Most of its revenue is generated by sales taxes from the North Riverside Mall, but the village skipped pension payments for three years when the recession hit and tax revenue dropped.

The village now faces an operating budget deficit of $1.9 million, with $1.8 million due to pension obligations. The required payments to the firefighters’ pension fund have skyrocketed sevenfold in the last 10 years.

Unions say the idea would be a breach of contract:

J. Dale Berry, lawyer for North Riverside Professional Firefighters Local 2714 and counsel to the Associated Firefighters of Illinois, says North Riverside is obligated to keep the contract’s current provisions while it proceeds through arbitration, which he says the village is trying to circumvent. The contract, he notes, has a clause forbidding the kind of subcontracting privatization the village seeks.

“They presented this as a fait accompli,” Berry says, noting officials rejected union offers for cheaper health plans, cost cuts and an offer to help organize a consolidation with other departments. “This privatizing thing is another way to open the door to patronage, nepotism, non-merit hiring,” Berry said.

The North Riverside Firefighters Union Local 2714 has said it will sue if the fire department is privatized.

More coverage of the town’s pension funding crisis can be read here.

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