Fire pension official criticizes city for moving money to general fund

By Bob Seidenberg

Members of the city’s finance and budget committee closed an open wound when they voted to completely fund public safety pensions by 2040, the president of the city’s firefighters pension board said last week.

But they are risking “ripping it open” by moving money from a tax intended to boost pensions into a city general fund for unrestricted use, said Jack Mortell, president of the firefighters pension board and a retired fire captain, to city finance and budget officials at their May 14 meeting.

“My concern is that it’s a slippery slope,” he said after the meeting. “If they misdirect those funds the first time, what’s going to prevent that from happening in the future? That’s how these funds sunk in the first place.”

At the meeting, committee members voted 4-2 against First Ward Council Member Clare Kelly’s motion calling for an escrow fund to be created for money generated by the Personal Property Replacement Tax, ensuring it funds pensions. Kelly and committee member Leslie McMillan cast the yes votes.

Kelly’s motion came after Mortell said that nearly $1.3 million of revenue from the tax should have been reserved to pay the pensions, per the language of Evanston’s pension policy, which was adopted by the City Council on July 24, 2023.

Mortell, a retired Evanston Fire Department captain and lifelong resident, said he discovered the money had been moved to the general fund about nine weeks after the City Council adopted a policy designating the tax as a prime source of contributions to get the long underfunded pensions on a 100% funding track by 2040.

Mortell said he learned the money was going into the general fund, which is used to pay for a wide range of city expenses, after reading financials provided to the Evanston Firefighters Pension Board in February.

Firefighters’ pension board responds

One day after the finance and budget committee decision, the Evanston Firefighters Pension Board, which Mortell heads, voted 4-0 to approve a motion calling for greater transparency in the handling of retiree funds.

The board is responsible for providing and distributing funds for the pensions of more than 250 members of the pension fund, which includes all active members of the Evanston Fire Department plus retirees, those on disability pensions, firefighter widows and minor children of deceased firefighters.

The motion calls for Hitesh Desai, the city’s chief financial officer and treasurer, to provide the pension board a variety of information about the tax revenue, the general fund and other city financials every quarter.

Members voting for the transparency resolution included Shari Reiches, current chair of the finance and budget committee.

Established in 1979, the Personal Property Replacement Tax was the state’s effort to replace the money lost by local governments when cities no longer had the power to impose personal property taxes on corporations and other business entities.

In November 2022, Mortell called attention to the council pointing to the tax as a revenue source that could be used rather than a tax increase for the city to meet its pension obligations. He said his examination of city budget reports dating back to 2002 found that a very small percentage of Personal Property Replacement Tax revenue the city had brought in over 20 years had gone to pensions.

At the May 14 finance and budget committee meeting, he pointed to the policy document the City Council adopted, along with the ground-breaking legislation, identifying the maximum allowable Personal Property Replacement Tax allocation as one of the sources of pension contributions. A pension property tax levy and additional unrestricted revenues and expenses available in the general fund were also listed.

Mortell told committee members that Alexandra Ruggie, the city’s corporation counsel, had confirmed that 100% of Personal Property Replacement Tax funds is allowable. He quoted from an Illinois Department of Revenue document stating “the basic intent of PPRT law is to prevent the excessive taxation of real estate.”

“It’s not to be flipped into the budget,” he added.

Ruggie: City Council the group to provide direction

Ruggie confirmed that the Personal Property Replacement Tax revenue may be allocated at 100% for pension funding.

“What I also specified is that the City of Evanston, the finance department, would be looking to City Council to provide direction on exactly how much of this would go into the pension from PPRT,” she said.

She told committee members that when the issue arose, she researched the legislative history of the pension policy. She said that while there did appear to be direction originally on where the funding had to come from, that language was taken out. She said the language now states that the money can come from a number of areas.

“It doesn’t specify which one and in which order,” she said, adding that “we don’t have a budget ordinance that specifies where revenues go. So we do need the City Council to clarify; that would be my recommendation.”

Finance and budget member David Livingston, chair of the committee when the group passed the pension policy, noted that there is overall agreement on the city’s goal to reach 100% funding by 2040.

That funding track currently comes to about $26 million a year, he said. From there, he said, officials have to figure out what their present property tax is and work from there, taking into account Personal Property Replacement Tax revenues as well as available general fund reserves.

“I don’t think it makes sense to tie the city’s hands and say ‘PPRT has to go into an escrow account and can only be used for one thing,’” he told committee members. “We have already adopted a policy that says we will make that contribution. And at the end of the day, we’ve given the City Council cover to go ahead and raise the property tax if we’re out of excess reserves.”

Council Member Jonathan Nieuwsma (4th Ward), another member of the committee, also said he was not in favor of an escrow account for the Personal Property Replacement Tax revenues, on the same basis.

“We have many, many other obligations to the city in addition to our very important pension obligation,” Nieuwsma said, “and we need to be able to make the call based on the situation, in whatever it is in future.”

But Kelly noted the council policy to apply the maximum allowable amount of Personal Property Replacement Tax to pensions.

“We have an obligation first and foremost to our residents,” she said. “And our residents have been harmed by the underfunding of our pensions to the point where most of our property tax levy for the city is going towards the interest on this liability. It is our obligation to do whatever we can to our residents to reduce this harm.”

Desai said the city is giving the 100% actuarial contribution toward reaching 100% funding by 2040 state law.

In meeting the goal, he said, “I think that the intent was to give 100% contribution, and not 100% PPRT.”

He questioned the assumption that the city would be lowering taxes by dedicating Personal Property Replacement Tax revenues to pensions.

“Yes, we can reduce one tax levy,” he told committee members. “Where does the PPRT money go now? In general [the general fund]. So I would be short by that $2 million, $3 million, $5 million. How would I fill that gap?”

Mortell said that “when you use PPRT directly for pension payments, that’s a tax savings to all us homeowners. And I’ve asked you,” he said, referring to finance officials, “if you put that amount, what else would we have to levy? I asked that two weeks ago, they have not replied. I said, ‘Here’s the levies, which one would you have to raise? They can’t answer that.”

Mortell: Revenues should go directly into tax savings

“The first year that we went to 100% funding” with Mortell and Timothy Schoolmaster, representing the police pension fund, and retired firefighter-paramedic Dave Ellis joining Morton on the fire pension fund, “it had a $26.6 million reversal [savings] on our unfunded accrued actuarial liability.”

Mortell said “this works,” popping up from his seat in council chambers at the finance and budget meeting to respond to the members statements.

“I came in to this for tax savings. I pay taxes here too,” he said. “If you wash it through the general fund, it doesn’t reduce our pension property tax lien. That would be a mistake. We have this wonderful opportunity to save us taxpayers some real dough here and you’re doing everything to dodge it.”

But Livingston said taking that path, “you’re just going to create a hole in the general fund, because that’s where the money is going today.”

Further, he noted, the city is currently running a deficit of $10 million a year. “Our excess reserves are going to be gone by the end of next year. We have to find a mechanism which would raise the property tax,” Livingston said.

“Using 100% of the PPRT,” said Kelly, “if we take 100% of the PPRT and keep it [the property tax] flat, and then we tap into excess reserves, it’s highly, highly unlikely we’ll need to raise taxes.”

Mortell said he intends to continue to press the issue. “As president of the Evanston Firefighters Pension Fund, I have a statutory fiduciary responsibility to ensure the continued financial viability of the City of Evanston’s statutory and further agreed-to contributions.”

Bob Seidenberg

Covers Evanston and the North Shore

Fire pension official criticizes city for moving money to general fund

Firefighters’ pension board responds

Ruggie: City Council the group to provide direction

Bob

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Firefighters’ pension board responds

Ruggie: City Council the group to provide direction

Bob

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