What Happened?
North Riverside, Illinois, is toying with the idea to privatize its fire department in an effort to maintain funding despite rising pension costs. Illinois state law requires municipalities to fully fund their local pensions, and North Riverside has a pension obligation of $1.8 million due by 2016.
The Goal
North Riverside is looking into privatizing the police department after the state of Illinois filed a complaint against the village for its inability to meet funding liabilities for the public employee pension systems. North Riverside would expand its existing 28-year agreement with private company Paramedic Services of Illinois to include the department’s 16 firefighters.
By privatizing the village’s fire department, officials estimate saving $700,000 per year. North Riverside would generate these savings by cutting:
- Overtime hours
- Vacation time
- Workmen’s compensation
- Liability insurance
- Pension obligations to the state
The firemen involved in the privatization agreement would also be transferred to a 401(k)-style retirement plan.
Illinois law demands municipalities fully fend their public pension obligations by 2016, or else risk the state extracting funds from their sales tax revenues to fund the pensions.
Illinois Law
In December 2013, the Illinois General Assembly passed a pension reform bill to halt the skyrocketing unfunded liabilities for four out of the five public pension systems. The law aims to reduce statutorily required state contributions by $144.9 million over 30 years, while reducing the unfunded pension liability by $24 billion. The pension reform law laid out the framework for the state to spend about 19 percent of its general revenue to pay off the pension funds starting in 2016, expected to have the systems 100 percent paid for by 2045.
The pension reform law also aims to generate significant savings across the state in the long term by making sweeping changes to finance processes and oversight. When comparing state revenue and spending in the years to come with and without the reform law, Illinois projects savings of:
- $3 billion by 2035
- $5.2 billion by 2039
- $15.5 billion by 2045
Much of these savings will be accumulated by limiting automatic annual benefit increases, raising the retirement ages for younger workers and capping the salaries used to determine pension amounts. The changes will apply to the state’s Teachers’ Retirement System, State Employees’ Retirement System, State Universities Retirement System, and General Assembly Retirement System.
No Passing Trend
Privatizing fire departments or other public agencies is growing in popularity across the country. In Glendale, Arizona, for example, the City Council will vote on a making permanent a $24 million temporary sales tax of 0.7 percent to avoid making drastic cuts in police, fire and other public services. Opponents are calling for research into privatization opportunities to unload the burden placed on taxpayers. Glendale, like many other cities across the country, and watching their credit rating plummet after failing to meet their pension liabilities with ever-shrinking budgets.
Going Private
Gov1 has reported on a wide variety of privatization agreements ranging from parks to emergency services.
Promo: North Riverside is looking to privatize its fire department to meet unfunded pension liability obligations enforced by the state.