CHICAGO, Oct 10 (Reuters) - Illinois Governor J.B. Pritzker on Thursday called on state lawmakers to pass legislation this fall to consolidate nearly 650 police and firefighter retirement systems that are causing funding headaches for many local governments.
The Democratic governor said the current system of governments maintaining their own pension funds "is failing," noting that the formation of two new statewide funds would generate as much as $2.5 billion in additional investment returns over the next five years.
"If adopted by the General Assembly, it would be a monumental achievement in the history of our state," Pritzker told reporters.
Ballooning pension liabilities for some cities have led to budget cuts and credit rating downgrades. The city of Alton sold its regional wastewater system earlier this year to raise money for its pensions.
The aggregate funded ratio for firefighter and police retirement systems outside of Chicago fell to 55.47% in 2017 from 57.58% in the prior year, according to a July report from the Illinois Legislature's Commission on Government Forecasting and Accountability. Unfunded liabilities rose by $1 billion to $11 billion.
Pritzker said by pooling their more than $14 billion of assets, the pension funds would lower administration costs and enhance investment opportunities, while easing pressure on local property taxes.
James McNamee, president of the Illinois Public Pension Fund Association, which counts most of the funds among its members, raised concerns about adequate police and firefighter representation on the consolidated funds' boards and market timing risks associated with liquidating assets.
The consolidation proposal, which grew out of a task force the governor created earlier this year, does not include Chicago, which is struggling with escalating contributions to its four retirement systems.
Pritzker said Chicago's problem as well as the state's own $133.5 billion unfunded pension liability will be examined in the future.
Meanwhile, retirement systems in a few cities, including Chicago, have sought state withholding of revenue due the municipalities because pension contributions fell below levels required by state law.
In the latest case, East St. Louis faces the diversion of about $3.9 million in state revenue to its police and fire fighter pension funds. The move "will create extreme changes in the city’s budget and likely result in reduction of some services," East St. Louis said in a statement earlier this month. (Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)