Cook County

Cook County (Tribune illustration / March 25, 2012)

Last year North Riverside officials received a letter from a state agency ordering the village to start paying more into its underfunded pension accounts or face a financial reckoning.

The ultimatum and a shortage of cash prompted the village to consider an unusual solution — privatizing its fire department.

At least five other Illinois municipalities, including Loves Park, were sent similar warnings from the Department of Insurance, underscoring the troubled state of government pension plans in Illinois and forcing the towns to search for solutions.

The letters, obtained by the Tribune, detail an enforcement mechanism that will allow the department to divert sales taxes and other revenue from a town's coffers to local police and fire pension funds starting in 2016.

The mechanism was included in a 2010 law that requires local governments to pay enough toward their police and fire pensions each year to make the pensions 90 percent funded by 2040. Currently, the state requires municipalities to make annual payments but does not have the same enforcement tool.

North Riverside officials are publicizing the fire department privatization plan in advance of a Department of Insurance hearing Thursday, during which they plan to pitch the idea.

For municipalities with habitually underfunded pensions, the deadline to pay means difficult choices that could include tax increases, service cuts or dramatic changes such as the North Riverside proposal.

"That can create a fiscal crisis in a lot of those communities," Illinois Municipal League Legislative Director Joe McCoy said.

In North Riverside, even the maximum property tax increase allowable under state law would not cover the village's fire and police pension obligations, North Riverside Mayor Hubert Hermanek Jr. said.

The village's budget projections for the coming year show a deficit of about $1.9 million, $1.8 million of which comes from its pension obligation, Hermanek said. The village underpaid its pensions by about $5 million between 2008 and 2012, according to the letter.

Hermanek said the village didn't have the money to pay for the pensions because sales taxes dropped drastically during the economic recession.

He estimates privatizing the fire department would save the village about $700,000 by moving firefighters to 401(k)-style retirement plans and reducing overtime, vacation, worker's compensation, liability insurance and other costs.

Under the proposal, the village would expand an existing contract with Paramedic Services of Illinois to include the village's 16 firefighters. The company would use the village's firetrucks and firehouse, he said.

The North Riverside Firefighters Union Local 2714 declined to comment on the proposal.

Pat Devaney, president of the Associated Fire Fighters of Illinois, said North Riverside should have better funded its pensions.

"Certainly most of the fault and most of the blame lies right at the feet of the village itself," Devaney said.

He questioned whether the town's firefighters would go along with the plan and start work for the private company. If they don't, village residents will be stuck with a department lacking the local firefighters' experience, he said.

"What's not being said here is what's in the best interests of the public," he said.

Privatizing fire departments is relatively uncommon in Illinois, said William Balling, a former village manager of Buffalo Grove who now runs a management consulting firm.

Paramedic Services of Illinois provides paramedic services to 24 communities in Illinois, the company's vice president, Mike Hansen, said in a prepared statement, but the company provides fire protection services only to the village of Lincolnwood and Barrington Countryside Fire Protection District.