At the urging of financial advisers, Oak Lawn officials are considering adopting a formal funding policy for the village’s police and fire pension funds.
Finance director Brian Hanigan and his management team laid out the details of the financial situation of the pension funds at the village board meeting on Tuesday. Hanigan said he would be seeking approval for his formal funding policy request at the next meeting, on May 10.
He and actuary Todd Schroeder credited the board with increasing funding for the pensions from $1.4 million in 2011, to the $6 million budgeted for 2016. This represents a 350 percent increase for the police pension and 461 percent for the fire department.
However, Hanigan said that as of Dec. 31, 2015, the pensions were still only funded at 54 percent level for police and 56 percent for fire. This represents $275 being paid by each household.
But he said complying with the anticipated state law that both pensions be funded at a 90 percent level by 2040 would require an additional $200 per household per year over the next 25 years.
Hanigan said the pension costs could take 22 or 23 percent of the general fund. But the finance director suggested that much of that additional cost could come from the tax levy, without any additional increases, if the village board is conservative.
“We’re trying to keep the tax levy constant during this period,” said Schroeder. “Adopting a standard payment schedule will pay down the village debt overall, but not doing so could cost $126 million to our balance sheet.”
“Cash flow out is going to be constant. So the cash flow in is an important consideration,” said Schroeder.
Schroeder said failing to adopt a formal funding policy would also endanger the village’s current A+ bond rating.
“There needs to be a committed effort to pay down the debt,” said Hanigan.
Most if not all of the trustees seemed to be on board with the proposal, which will be discussed further on May 10.
“If we adopt this policy, it will give us a chance to save our (bond) rating,” said Trustee Bud Stalker (5th). “I liken this to when you buy a house, you agree to pay the mortgage. Brian is asking us to do is commit to paying the mortgage, and I think it is a great plan.”
“We have known that this was coming down the road for some time,” said Trustee Alex Olejniczak (2nd). “This is the goal we need to accomplish and is the most responsible way for us to do this. I think this is a very good and thorough plan. We made a commitment to the police and fire department members and it is right that they have their pensions,” he added.