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Towns selling sewer systems to pay down pension debt

Wednesday, Nov 13, 2019

* Brian Brueggemann

In 2018, Alton’s pension funds for firefighters and police officers had about $117 million in unfunded liabilities — the retirement money that will have to be paid to retirees.

But in June, the city cut that shortfall nearly in half. How? They sold the city’s sewer system to a company, Illinois American Water, for $53.8 million.

Godfrey also sold its wastewater system to Illinois American, for $13.5 million.

And now Granite City, which has $83 million in unfunded liabilities in its police and firefighter pension funds, is looking to sell part of its wastewater system.

But Kent Redfield, an expert in Illinois politics and government, warned that selling off city assets could be a bad move, particularly if the sale provides only a quick, bandage repair to a long-term pension problem. He said once a city sells its sewer system, there’s little chance the city will ever own it again.

“You can only sell your car once to make your house payment,” Redfield said. “Is it a long-term fix, or is it a temporary Band-Aid that kicks the can down the road?”

I’m not a fan of these sales. At all. But this isn’t about selling your car to make a house payment. It’s about selling your car to pay off as much as half your mortgage, which I’d say is not a terribly bad idea.

…Adding… I’m seeing a lot of comments like this…

This is exactly like the city’s parking meters

Nope. That’s ridiculous.

Mayor Daley spent all the parking meter money right away. The lease had no lasting value. If he had put the windfall into the city’s pension funds, Chicago would be a whole lot better off today.

- Posted by Rich Miller        

  1. - AnotherAnon - Wednesday, Nov 13, 19 @ 1:08 pm:

    Welcome to the future of Illinois.

  2. - SpfdNewb - Wednesday, Nov 13, 19 @ 1:12 pm:

    Going the way of Michigan, how did that work for the people of Flint?

  3. - j - Wednesday, Nov 13, 19 @ 1:13 pm:

    Sad. Developing countries have to privatize assets to get IMF loans.

  4. - revvedup - Wednesday, Nov 13, 19 @ 1:14 pm:

    Here come rate increases for taxpayers, since there are no effective controls on privately-owned system fees, after politicians fumbled on making sure pensions were properly funded. Selling or leasing public assets (like the towns listed, or Chicago’s parking meter fiasco as examples) as desperation moves.

  5. - AnotherAnon - Wednesday, Nov 13, 19 @ 1:16 pm:

    Decades of political corruption of the pol and public worker oligarchy finally taking hold.

  6. - Notorious RBG - Wednesday, Nov 13, 19 @ 1:19 pm:

    This is exactly like the city’s parking meters. Once these old systems get bought up by Illinois American Water or Aqua Illinois, their rates go way up. Taxpayers aren’t paying close enough attention to what their municipalities are doing on this front. The water companies say they’re going to clean up old systems that need lots of work, which is true, but they’re also jacking the rates up to do it, and then people can’t pay their water bills. It’s terrible.

  7. - sewer thoughts - Wednesday, Nov 13, 19 @ 1:21 pm:

    how apropos of a topic, but Rich I would beg to differ on the car/mortgage analysis. This is more like closing out your IRA or 401k to meet your mortgage, as sewers are revenue sources as well as potential liabilities. You no longer make contributions to your 401k so you save that money, but you won’t have money from it when you need it most.

  8. - Maybeboomer - Wednesday, Nov 13, 19 @ 1:26 pm:

    Why is the state rushing to increase the pension liabilities with all those changes? If towns can pay now? Why increase the tier 2 benefits imagine what will happen to the towns. What with happen to Illinois.

  9. - Ducky LaMoore - Wednesday, Nov 13, 19 @ 1:26 pm:

    This is a bad idea 99% of the time. Whether it is immediate, or in 10 or 20 years, these deals end up being a nightmare. Either because of the rates they can charge, and or a lack of maintenance or personnel. I’d never ever recommend it.

  10. - OOO - Wednesday, Nov 13, 19 @ 1:34 pm:

    I agree with Rich that this is an idea worthy of consideration. However, that conclusion assumes that the current liability is the total liability. The current faults of the pension system (labor control of pension decisions, labor majority on the new statewide pension boards, GA granting additional pension benefits, using non-merit based criteria to select financial advisors, etc.) will likely result in additional liabilities in the future, meaning that another asset sale will be needed in the future.

  11. - Collinsville Kevin - Wednesday, Nov 13, 19 @ 1:36 pm:

    It’s been clear to me for years that police and fire pensions will gradually bleed municipalities to death.

  12. - R A T - Wednesday, Nov 13, 19 @ 1:37 pm:

    And this is when we are in good economic times. A recession is going to devastate Illinois.

  13. - thechampaignlife - Wednesday, Nov 13, 19 @ 1:41 pm:

    You need a referendum to issue bonds to build infrastructure. Why is it that you do not need a referendum to sell it?

  14. - Ares - Wednesday, Nov 13, 19 @ 1:43 pm:

    It’s not only the actual infrastructure systems, but the cash flows generated by these infrastructure systems. Chicago was Daleyed out of decades of cash flow from the Skyway, the Millennium / Grant Park garages, and its parking meters, and is ripe for Daleying by foreigners again (say, the Chinese government buying the Chicago water works and / or its cash flows).

  15. - Rich Miller - Wednesday, Nov 13, 19 @ 1:47 pm:

    ===will likely result in additional liabilities in the future, meaning that another asset sale will be needed===

    The biggest problem by far is the current unfunded liabilities. If you can pay down the debt and make your actuarially required contributions, then you’re on the road to stability.

  16. - Sue - Wednesday, Nov 13, 19 @ 1:55 pm:

    Too bad we outlawed indentured servants- just think how much Illinois could get for the members of the Legislature 😄

  17. - sulla - Wednesday, Nov 13, 19 @ 1:57 pm:

    Reminds me of this passage from Matt Taibbi’s “Griftopia”:

    “When you’re trying to sell a highway that was once considered one of your nation’s great engineering marvels — 532 miles of hard-built road that required tons of dynamite, wood, and steel and the labor of thousands to bore seven mighty tunnels through the Allegheny Mountains — when you’re offering that up to petro-despots just so you can fight off a single-year budget shortfall, just so you can keep the lights on in the state house into the next fiscal year, you’ve entered a new stage in your societal development.

    You know how you used to have a job, and a house, and a car, and a wife and a family, and there was food in the fridge — and now you’re six months into a drug habit and you’re carrying toasters and TVs out the front door every morning just to raise the cash to make it through that day? That’s where we are.”

  18. - Rich Miller - Wednesday, Nov 13, 19 @ 2:01 pm:

    ===This is exactly like the city’s parking meters===

    No it is most definitely not.

    Daley put that money into his operating budget. If he had put it into the pension funds, Chicago would be a whole lot better off today.

    Take a breath already.

  19. - Smalls - Wednesday, Nov 13, 19 @ 2:07 pm:

    R A T, you are exactly correct. If you look at the history of the funded ratios, each time there is a recession there is a 5-10 point drop in funded ratios. We are at roughly 40% funded ratio statewide currently. The next recession will push the state pension funds down into the 30%’s.

  20. - SSL - Wednesday, Nov 13, 19 @ 2:10 pm:

    If it’s really a good deal, then why not expand this practice and start reducing government jobs?

  21. - Lucky Pierre - Wednesday, Nov 13, 19 @ 2:10 pm:

    The real issue is there are no effective controls on public sector union pension and healthcare benefits is deep blue Illinois

    New Jersey faces a similar problem but the top Senate Democrat is actually pushing back on the demands the public sector unions are making by refusing to raise taxes without reforms

    JB isn’t even pretending to pay the actuarial requirement and is pushing for a 1 billion reduction in the current payments

  22. - City Zen - Wednesday, Nov 13, 19 @ 2:23 pm:

    Pension systems leveraging sewer revenue. Seems appropriate.

    ==If he had put the windfall into the city’s pension funds, Chicago would be a whole lot better off today.==

    And they would’ve gotten in near the bottom of the market.

  23. - A State Employee Guy - Wednesday, Nov 13, 19 @ 2:30 pm:

    I think it’s more like paying half your mortgage, only to see that mortgage ballon again in the future because you didn’t care to address why it ballooned in the first place.

  24. - Rich Miller - Wednesday, Nov 13, 19 @ 2:37 pm:

    ===only to see that mortgage ballon again in the future because you didn’t care to address why it ballooned in the first place===

    Can’t happen with the new state law.

  25. - Mason born - Wednesday, Nov 13, 19 @ 2:57 pm:

    Something to remember, all 3 of these communities have already sold their drinking water systems to IL American a long time ago. They’ve had a working relationship with the company and experience with their management.

    As for price IL American is regulated by the Commerce Commission so it’s not quite the wild West. I also wouldn’t assume those Communities wouldn’t themselves had to raise rates to maintain the system.

    They’ll be supervised by IEPA just as the Alton, Godfrey, and Granite City was when it was in municipal hands.

    This may or may not be a good idea, IMHO that’ll depend on how the funds are used, but it isn’t some crazy idea,

  26. - NorthsideNoMore - Wednesday, Nov 13, 19 @ 3:02 pm:

    Deal with the devil, look at the rates in th southwest suburbs that have IL American. They never get pushed back by icc and have overstated their system improvements.

  27. - illinifan - Wednesday, Nov 13, 19 @ 3:02 pm:

    Awful move to sell utilities to Illinois American Water. I live in an area where this has company has been operating for a while monthly I pay $73 a month for just the sewer. So if I use no water this charge is made. The cost has gone up consistently. What will happen in these areas is the cost will continue to rise and AmWater will then use the line they used with me, “we have to raise the price as we did not know the sewer lines were in such disrepair”

  28. - Demoralized - Wednesday, Nov 13, 19 @ 3:05 pm:

    ==without reforms==

    Is that you Bruce Rauner?

  29. - Demoralized - Wednesday, Nov 13, 19 @ 3:12 pm:

    If you can get an infusion of money to increase the funded ratio I don’t see a problem with it.

  30. - Shemp - Wednesday, Nov 13, 19 @ 3:28 pm:

    The rates have to go up every year anyway to pay for operating costs (labor, chemicals, electricity, etc). But when there are large increases, it’s often because cities were charging artificially low rates by not accounting for plant depreciation. It works fine until the IEPA doesn’t renew the operating permit and suddenly a city has to borrow $20 million or $40 million to build a new plant and jack up fees to pay for the new plant that they should have been squirreling away in a depreciation account.

  31. - OOO - Wednesday, Nov 13, 19 @ 3:32 pm:

    ===If you can pay down the debt and make your actuarially required contributions, then you’re on the road to stability.===

    Not necessarily. ARCs are based on a certain set of assumptions. If those assumptions are inaccurate or incorrect, then the debts grow and you’re no longer on the road, you’re in the ditch.

  32. - Sue - Wednesday, Nov 13, 19 @ 3:32 pm:

    It’s yesterday’s news but speaking of Rich Daley - he took the CPS pension fund in 1995 when it was 104 percent funded- got the Democratic Legislature to approve a 10 year pension holiday and now as we all know the fund is in deep manure

  33. - City Zen - Wednesday, Nov 13, 19 @ 3:43 pm:

    ==10 year pension holiday==

    Labor peace ain’t free.

  34. - Merica - Wednesday, Nov 13, 19 @ 4:19 pm:

    you can talk about pumpkin pies and daylight savings time, but right own the future appears to be more depressing stories like this. If there isn’t a “solution” a fix, a path and light at the end of the tunnel for Illinois’ state and local pension mess, there isn’t a reason to plan a future here. and it doesn’t matter what party you belong to, it doesn’t matter what you think about labor and it doesn’t matter what your income is.

  35. - A State Employee Guy - Wednesday, Nov 13, 19 @ 4:33 pm:

    Yes because laws mandating payments into pensions systems are never ignored. /s

  36. - Froganon - Wednesday, Nov 13, 19 @ 4:52 pm:

    Privatizing water and sewer services is a bad idea. The rates go up to cover needed repairs and provide whatwever profit margin the “free market” owner can squeeze out of rate payers. OUr town bought out the private owner after years of terrible service and inadequate maintenance. It took years and higher rates to fix the system. We paid more and go better water. The State must step in to help these municipalities and the legislature must stop adding to the bill by expanding benefits. Consolidate the P and F funds without the disability sweetner or try again next year.

  37. - Sue - Wednesday, Nov 13, 19 @ 5:09 pm:

    Rich - you are just categorically wrong thinking this is a good approach. Giving up control of vital services over to a for profit vendor is an accident waiting to happen. If a municipality is in such dire straights it needs to sell off infrastructure- maybe Illinois needs to evaluate municipal bankruptcy legislation. Since that is never going to happen in a state run by public sector unions - the municipal governments should annuities future water and sewer revenues by selling bonds and depositing the bond proceeds into the pension accounts

  38. - A - Thursday, Nov 14, 19 @ 8:26 am:

    Ratepayers of American Water and Aqua pay for the companies’ acquisitions in their rates… the purchase price and closing costs. This money isn’t falling from the sky

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