Putting out the fire
North Riverside has a novel answer for its pension crisis
Published by the Chicago Tribune on June 26, 2014
North Riverside is a small town with a big problem: It can't make its pension payments.
The west Cook County suburb of 6,700 people faces a $1.9 million budget deficit. One big reason for the gap is that it has to make a $1.8 million payment to its police and fire retirement funds. North Riverside doesn't have the money.
The village can't tax its way out of debt. It can't borrow its way out of debt. It can't wait for state lawmakers to fix the problem. It needs a solution, now.
In short, it is much like the city of Chicago and countless municipalities around the state. It is in trouble.
On Monday, the North Riverside Village Board voted 5-1 to contract with a private company to staff its Fire Department. It's a creative answer — and not as risky as it might sound.
The city's 12 firefighters and four lieutenants will keep their jobs at their current salaries with modest raises ahead, but they will work for Paramedic Services of Illinois, which already provides ambulance service for the village. The head of the Fire Department will still work for the village. North Riverside officials say they will save more than $745,000 next year in lower costs for insurance, overtime, sick leave and pensions by shifting employees to the private company. The firefighters' traditional pension plan will be frozen, and they won't lose any accrued benefits. Going forward, they'll have a 401(k) retirement plan, as so many private sector workers do.
The village already contracts for paramedic services with the firm that will employ the firefighters. Under the deal, the firefighters would have to become licensed paramedics — a real safety advantage for village residents. North Riverside will save up to $4 million over the next five years through this deal, the village estimates. That will go a long way toward resolving the financial crisis.
Expect to see this kind of contract arrangement for essential services happen more often as local governments grapple with massive pension obligations and wait in vain for the Illinois legislature to provide them some relief.
Cities and towns are suffocating under the pressure of those pension obligations. North Riverside's firefighter pension fund has only 43 percent of the money needed to meet its obligations. The village didn't make full payments in recent years as tax revenues lagged.
The village was prompted to act now by a state law that forces local governments to ramp up pension contributions under threat of having sales tax revenue and state funding diverted to the pension plans if they don't comply. North Riverside received a warning last year from the state Department of Insurance. Village officials are scheduled to appear Thursday at a department hearing to explain what they're going to do to comply. Earlier this month, Moody's Investors Service downgraded North Riverside's credit rating.
So the village has its answer. It's a creative one. And we expect you'll hear a lot of towns making the same decision in coming years. Nobody else is giving them an answer for their financial woes. They have to find one on their own.
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