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Chicago Suburb To Scrap Fire Department Due To Pension Costs

The town of North Riverside, a small suburb west of Chicago, is moving to terminate its contract with all village firefighters and hire new firefighters from a private service. The village claims it is facing a $2 million budget deficit and it cannot handle the costs of the salaries and benefits of the firefighters.

From A North Riverside press release:

Mayor Hubert Hermanek, Jr. of west suburban North Riverside, after yesterday announcing an impasse after six “good faith” negotiating sessions with Firefighters Union Local 2714, instructed the village’s attorneys to file suit today in Cook County Circuit Court asking that court to affirm North Riverside’s right to legally terminate the firefighters’ contract, which expired on April 30, 2014.

North Riverside, with a population of 6,672 in 2,827 households, derives most of its revenue from sales tax, thanks in large part to North Riverside Park Mall. However, the village is facing a proposed fiscal year 2014-2015 operating budget deficit of $1.9 million, with $1.8 million of this deficit being a direct result of the Village’s growing annual public pension obligation. All of this and more is evidence that supports the Village’s inability to sustain salary and benefits of over $200,000 per fireman and $230,000 per Lt. anymore.

Contracting firefighter services from Paramedic Services of Illinois (PSI), which has provided paramedic services to North Riverside for the past 28 years, would save the village more than $700,000 annually and vastly reduce the adverse impact of future pension obligations imposed by the state. All PSI paramedics are certified as firefighters, as well.

According to Hermanek, the village presented multiple compromise proposals to the union, including a progressive privatization plan based on an 11-year contract, during which 10 of North Riverside’s 14 current firefighters would reach retirement age and 25+ years of service. As they retired or normal attrition occurred, firefighters would be replaced with firefighters/paramedics from PSI. As a result, by the end of the 11-year contract, village fire and emergency protection services would be almost fully privatized, maintaining safe and reliable service, while achieving cost-savings necessary if North Riverside is to remain solvent.

As noted in the above paragraph, the village had previously tried to strike a deal with the firefighters’ union where the village would phase out the old firefighters and slowly phase in the private force.

The union (Firefighters Union Local 2714) then brought three of its own proposals to the table. Ultimately, however, the village and the union couldn’t agree on any deal.

Pennsylvania Schools Feeling Pension Pinch

Pension payments for school districts have increased significantly in the last decade. CREDIT: Lancaster Online — Pension payments required of school districts have increased significantly in the last decade.
CREDIT: Lancaster Online

Pension costs have skyrocketed over the last decade for Pennsylvania public school districts, as the state’s pension liabilities and the contributions required from schools have both increased dramatically. From Lancaster Online:

The key concern is the underfunded Pennsylvania School Employees Retirement System. Due mainly to past actions by the Legislature — under both Democratic and Republican control — the statewide pension program currently carries a nearly $50 billion liability.

To make that up, districts have seen the amount they’re forced to pay skyrocket over the past several years.

– Elanco has seen its contributions rise from $350,000 in 2004 to $3.1 million in 2014.

– Lampeter-Strasburg had its payments grow from $325,000 in 2004 to $2.2 million in 2014.

– Hempfield has stretched those costs from nearly $1.5 million in 2004 to $5.4 million in 2014.

– Penn Manor was forced to increase that portion of the budget from just over $1 million in 2004 to $6.3 million in 2014.

Pennsylvania’s Public School Employees’ Retirement System (PSERS) was 66.3 percent funded as of 2012.

Pension Limbo Leaves Illinois Schools, Creditors Uncertain

The Illinois Supreme Court will soon rule on the constitutionality of the state’s sweeping pension reforms. But no one knows what the decision will ultimately look like—or when it will happen.

That uncertainty is weighing heavily on institutions that won’t know exactly what their fiscal future looks like until a court ruling comes down. From WUIS:

Tucked into the flurry of reports issued by credit rating agencies, one phrase has been appearing again and again, undercutting the financial outlook for many public schools and community colleges across Illinois. Under headings such as “Challenges” or “What could make the rating go down,” there’s often a warning along the lines of “increased budgetary pressures due to a shift in pension costs from the state.”

Tom Aaron, with Moody’s Public Finance Group in Chicago, says that’s because of “the likelihood that the state may have to search for additional pension answers.”

Despite prognostications by Quinn and others, Aaron says it’s not certain whether last year’s pension overhauls will be upheld by the Supreme Court.

“So in the event they are not, there is a risk that the state is going to have to go back to the drawing board in terms of trying to solve its pension issues,” he said.

And that could include a shift in pension costs from the state onto individual school districts, colleges and universities.

If the court overturns the state’s reform law, lawmakers will be sent back to the drawing board to draft a different set of solutions for cutting pension costs.

One proposal that gas gained steam in the past—and likely would be among the first policies proposed—is to shift pension costs from the state onto schools, colleges and universities. WUIS reports:

The cost-shift was once a key component of pension proposals. House Speaker Michael Madigan decried the “free lunch,” in which school boards set employee pay without worrying about future pension costs, since those would be borne by the state.

Even as recently as March 2014, Senate President John Cullerton mentioned it in a speech at the Union League Club of Chicago:

“We’ve suggested to the suburban and downstate areas, ‘You’ve got to start paying a little bit of your employers’ portion of the pensions.’ It’s called a cost-shift. … It’s important. This makes good public policy,” Cullerton said.

Moody’s doesn’t think schools can afford to wait. Moody’s Public Finance Vice President Rachel Cortez says the agency asks whether districts are bracing themselves for the possibility of a cost-shift:

“The stronger credits, the stronger management teams tend to be aware that that could be coming, and are preparing for it, making contingency plans,” she added.

The cost-shift would be particularly heavy fiscal burden on schools because state funding to schools has been chipped away in recent years.