Can Illinois help its municipalities pay their pension bills – and is it?

UIC Government Finance Research Center

A state law that went into effect in 2016 allows local police and fire pension boards to request the Illinois Comptroller’s office to intercept funds and redirect those monies to the pension systems if municipalities’ pension payments fall short of what their contributions are supposed to be under state law.

That cash has been a potential lifeboat for the pensions systems involved to make up for their shortfall and ensure the long-term sustainability of local governments and their retirement funds.

But has the Illinois law helped?

According to a new report from the Government Finance Research Center at the University of Illinois at Chicago, there is room for improvement.

“Our findings thus far indicate that local pension funds may not be triggering the enforcement mechanism even when municipalities’ contributions fall short of what they should be,” said Amanda Kass, study co-author and associate director of the center.

Kass and co-author Andrew Crosby, assistant professor of public administration at Pace University, identified 14 municipalities in Illinois that contributed less to their pension funds between 2016 and 2018 than they were required to under state law, but only Harvey and North Chicago had state-sharing revenue intercepted.

The situations in Harvey and North Chicago ultimately were resolved through negotiated settlements with their pension funds.

While conceding that some of the towns may have stopped shorting the pension funds by now, Kass and Crosby note a limitation of the law is that it doesn’t address the underlying financial issues that municipalities can’t solve independently to simultaneously make pension payments and maintain current levels of service.

Low property tax collection rates and rising poverty rates leading to increased spending for social services are among the financial factors cited that can keep some local governments from making the required pension contributions.