Days after a path forward appeared clear for Gov. J.B. Pritzker’s plan to consolidate hundreds of suburban and downstate police and fire pension funds, the compromise reached over the weekend hit a snag.
Four words in an amendment to the proposal led the Illinois Municipal League, a longtime advocate for pension consolidation and a backer of Pritzker’s initial proposal last month, to turn against the legislation in front of a House committee on Tuesday.
Illinois Municipal League Executive Director Brad Cole contends the amendment would shut out municipal governments from intervening in benefit allocation proceedings at the local level. In cases where benefits are abused, that could lead to a greater burden on their budgets and taxpayers, he said.
Cole called language that was introduced Monday a “midnight provision that penalizes the taxpayer, the person we’re trying to support.” He said he communicated his stance to Pritzker earlier Tuesday that he described as “unwavering.”
The House Personnel and Pensions Committee nonetheless advanced the amendment in a 7-3 vote Tuesday.
Negotiations among the stakeholders were expected to continue through Thursday, in hopes of passing consolidation legislation before the Illinois General Assembly is scheduled to break until next year, said Rep. Jay Hoffman, a Swansea Democrat who introduced the amendment.
“To just have four words separating us, we need to work through this and figure it out,” Hoffman said. “And we will.”
The plan to merge roughly 650 suburban and downstate public safety pension funds into two statewide funds had received a boost late last week when the Illinois Fraternal Order of Police announced it was on board with a compromise plan that included a change to the governance structure of the boards overseeing the funds that had been a sticking point.
The Municipal League had agreed Saturday to support the compromise the Pritzker administration had reached with police unions, Cole said.
The pension consolidation plan is aimed at narrowing a funding gap and alleviating the property tax burden for homeowners. Pension consolidation as a way to cut back on administrative costs and pool investments has been proposed in the past, but has failed to gain traction in the General Assembly and has faced pushback from police and fire unions, and other interests sought to retain local control.
When Pritzker rolled out the plan in October and called on lawmakers to take action this year, he had a key backer in the largest firefighters union in the state.
Under Pritzker’s initial plan, there would be separate statewide funds for police officers and firefighters, each managed by an eight-member board with equal representation of municipalities and police officers or firefighters.
The Illinois Fraternal Order of Police signed on late Friday after a key change that gave pension fund boards five members who are employees or retirees and four members who represent employers. A supermajority would be needed on votes on investment and actuarial decisions.
Collectively, the hundreds of local public safety pension funds have roughly $11.5 billion in unfunded liabilities. That’s a relatively small piece of the massive pension debt in Illinois, and it doesn’t address the billions of dollars in unfunded liabilities in the statewide pension funds or Chicago’s pension funds.
“Since we issued our pension consolidation plan on Oct. 10, these funds have lost out on $33 million in estimated returns — $1 million a day,” Deputy Gov. Dan Hynes said at Tuesday’s House committee meeting. “That’s what inaction will continue to cost us.”
In Pritzker’s proposal, each police or fire department would maintain a separate account within the two larger statewide funds, held in a pair of trusts separate from the state treasury. Assets and liabilities would not be shifted from one municipality’s plan to another, but pooling the funds for investment purposes would allow for fewer administrative fees that are currently paid separately by each of the local funds.
Over the past decade, the annual investment returns earned by the suburban and downstate police and fire funds, on average, have been about 2 percentage points lower than those of the Illinois Municipal Retirement Fund, the state’s best-funded public pension fund and a model for the proposed consolidation.