East St. Louis faces interception of state funds for $2.2M pension debt

The southwestern Illinois city faces high crime and poverty rates, as well as a $5.5 million budget deficit. Now, $2.2 million owed to its firefighters pension threatens to halt the flow of state funds.

Growing pension debt has a fourth Illinois city potentially facing interception of its state funding.

The Illinois Comptroller’s office late Sept. 17 received a request to halt state funds to the city of East St. Louis until it pays $2.2 million owed to its firefighters pension fund. That’s the total amount the city shorted the fund in fiscal years 2017 and 2018, according to a letter from the pension fund’s lawyers.

East St. Louis is the fourth Illinois city to face state funding interception since that remedy first became available to pension systems in 2018, said Abdon Pallasch, spokesman for Illinois Comptroller Susana Mendoza. The others are Harvey, North Chicago and Chicago.

The East St. Louis Firefighters Pension Fund is only 11% funded, according to the demand letter. State law set the city’s required contributions at more than $3 million for both fiscal years 2017 and 2018, but it fell short by $2.2 million.

The city has 60 days to file a response. Mayor Robert Eastern III was unavailable for comment and the city’s corporate counsel, John Baricevic, said he was not allowed to comment.

Even if the city protests the interception, it still faces at least a temporary state funding loss after the 60 days because the state holds the funds until the dispute is resolved, Pallasch said.

East St. Louis has over 26,000 residents, with 43% of them living in poverty. It has the highest murder rate of any U.S. city. City government started the year with a projected $5.5 million budget deficit that led to talk of massive police and firefighter layoffs, suggesting any loss of state funds could have a serious impact on public safety services.

Chicago is still in court fighting the interception of state funds for $3.3 million the city’s firefighters pension claims it’s owed for 2016 and 2017. North Chicago accepted the state intercept, and repaid its pensions $863,677 after about seven months.

Harvey is still repaying its pension funds after reaching an out-of-court agreement. The city has $54.4 million in pension debt between its police and fire pension funds, according to the most recent data from the Illinois Department of Insurance. Moody’s Investors Service, which uses less optimistic assumptions, pegs the debt at $87.3 million. Despite the repayment plan, the city was forced to lay off 18 firefighters, 13 police officers and other city workers to make its pension contributions.

Illinois has more than 650 local police and firefighter pension funds, each with its own board. Local pensions carry an estimated $63 billion in debt combined, and some state leaders have discussed consolidating the funds. Chicago Mayor Lori Lightfoot requested a state bailout of the city’s $42 billion pension debt, a move Gov. J.B. Pritzker rejected in July. Were the state to take on all local pension systems’ debt, it could raise the state’s total pension debt to about $200 billion.

While the pension debt for the five statewide funds is officially estimated at nearly $137 billion, Moody’s just pegged the debt at $240.8 billion, using less rosy estimates of future investment returns. That means despite a robust stock market, each Illinois resident is on the hook for $18,896 in state pension debt.

Since 2000, Illinois’ growth in state spending on pensions has led the nation at 501%, while spending on core services that residents value has dropped by one-third. Adding local pension costs to that burden is simply not feasible.

Instead, Springfield must control those costs by leading the state toward constitutional pension reform that protects earned benefits while allowing reasonable adjustments to the growth of future, unearned benefits. Short of that, local property taxes will continue to grow as cities cut services and lawyers send out more letters trying to force cities to pay what their pension funds are owed.