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 The city of Rockford is weighing a number of painful measures
to make room for employee salaries and the city’s growing pension liability.
Included among the proposals, according to the Rockford Register Star, are the
sale of the city’s water system and significantly downsizing its police and fire
departments through attrition, eliminating 40 and 27 positions, respectively.
Rockford is one of a number of severely distressed local governments in Illinois
dealing with three closely related problems:
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A shrinking population
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An enormous, growing pension burden that is crowding out
core government services
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An already-heavy property tax burden that limits the city’s
ability to raise revenue without driving out more residents and businesses
If state lawmakers don’t act to allow reasonable reforms to
Illinois’ pension systems, odds of solving any of these problems are slim.
Crowding out
Since 2013, Rockford’s pension costs have doubled to $18 million from $9 million
per year, which has plunged the city’s finances into crisis. Absent drastic
changes, Rockford will completely deplete its budget reserves within five years,
according to a consultant’s report for the city.
Led by growth in the city’s pension obligations, Rockford’s expenses are
projected to grow three times faster than revenues over the next seven years,
which could result in an overall $81 million deficit. “At that point,” according
to the Star, “Rockford could eliminate every aspect of city government except
for police and fire protection and still not realize enough savings to dig the
general fund out of its hole.”
On Oct. 8, Rockford Mayor Tom McNamara unveiled a budget proposal for fiscal
year 2019. And while that proposed budget is balanced, the mayor has
acknowledged that the Rockford’s long-term fiscal outlook should cause for
alarm. “By 2040, we’re going to be spending more money on pensions than we are
bringing in and all of our property tax revenue,” McNamara said, according to
WREX-TV. But as early as 2025, the mayor says, pensions will consume nearly 60
cents of every dollar of city revenue.
The rise of pension costs is especially concerning given Rockford’s people
problem. The city lost more than 6,100 residents, or 4 percent of its
population, from 2010 to 2017. Among Illinois cities with over 50,000 residents,
only Decatur saw a more rapid decline over that time in percentage terms.
With pension costs crowding out more and more of the budget each year, offering
residents tax relief or more bang for their property tax buck is difficult if
not impossible. On the contrary, Rockford taxpayers are facing public service
cuts at a time when their property tax burden far exceeds the national average.
According to property analytics company ATTOM Data Solutions, homeowners in the
Rockford metro area shoulder an average property tax bill of just under $3,500,
or an effective rate of 3 percent. That’s more than double the U.S. average of
1.17 percent.
Desperate measures
The water sale and public-safety downsizing are just a few of the proposals that
the National Resource Network – a coalition of nonprofit and for-profit
financial organizations – recommended in an Oct. 9 presentation to city
aldermen. Rockford was one of five “economically challenged” cities the network
selected to receive special assistance this year.
State law requires local governments in Illinois to have their municipal pension
funds at least 90 percent funded by 2040. The purpose of the National Resource
Network’s presentation was to outline a financial plan by which the city could
meet that requirement.
Aldermen, it’s worth noting, are not required to adopt any particular proposal,
and are certainly unlikely to integrate every one of the items presented. The
city will gauge public opinion, according to the Star, before City Council
pursues any of the recommended proposals.
Reaching the state’s funding requirement will demand some major sacrifices.
Other recommendations in the group’s presentation include freezing all city
employees’ wages at their current level or temporarily capping annual wage
growth at 1 percent, hiking ambulance fees, closing a fire station and
increasing required employee health insurance contributions. McNamara
incorporated the employee contribution increases into his Oct. 8 budget
proposal, according to the Star.
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The National Resource Network also recommended raising bus fares and charging
residents for downtown parking. In March, City Council approved a utility tax in
an effort to close a $3.9 million deficit. That tax, along with the park
district’s leasing of its Magic Waters water park to Six Flags Entertainment
Corp., allowed McNamara to propose a balanced budget without a property tax
hike.
But given the city’s recent population trends, new or increased user fees may
not deliver the long-term revenue increases officials might expect. Statewide,
Illinoisans cite high taxes as the No. 1 reason they consider leaving the state.
While McNamara’s intent to avoid a property tax increase deserves
acknowledgement, other new tax or fee hikes come with the risk of further
shrinking the city’s tax base, given Illinoisans’ already-high tax burden.
The way forward
McNamara criticized the state’s strict pension requirements in a September press
conference, pleading for state lawmakers to lower its funding mandate. However,
while lowering the required level of funding would offer municipalities relief
in the short term, it would do nothing in the way of controlling the growth of
costs ultimately owed to the pension funds. In the long term, lowering the
required funding level may actually worsen the problem: Shrinking the funds’
asset pools would shrink size of their investment returns.
The rising cost of pension benefits for government workers is weighing on
municipal budgets across the state. In the city of Chicago, as well as the
suburbs of North Chicago and Harvey, inability to meet mandated pension funding
levels has even prompted state intervention. In each instance, the state
comptroller garnished city funds and forcibly redirected them toward the
deficient pension funds. Without meaningful reform, Rockford may risk suffering
a similar fate.
To provide relief to state and local budgets – and the taxpayers who fund them –
Illinois must amend the state constitution’s pension clause to allow for changes
to unearned, future benefits – while protecting benefits already owed. To reduce
pension liabilities, reforms should aim to achieve the following:
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Increasing the retirement age for younger
workers, to bring them in line with private-sector retirement
ages
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Capping maximum pensionable salaries to limit
excessive pensions
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Replacing permanent compounding benefit
increases with true cost-of-living adjustments, or COLAs
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Implementing COLA holidays to allow inflation
to catch up to past benefit increases
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Automatically enrolling all new government
employees into 401(k)-style retirement plans, similar to what’s
overwhelmingly used in the private sector
Defined-benefit pensions jeopardize government workers’ retirement security and
tether taxpayers to massive, unpredictable costs. Unless state lawmakers muster
the political will to amend the Illinois Constitution, government workers and
local taxpayers alike will continue to be subject to looming uncertainty – and
painful public service cuts. While Schaumburg taxpayers struggle
with a high tax burden, the village’s highest-earning government
employee is collecting a salary of $240,770, a whopping 318 percent
more than the median household income.
That employee, Village Manager Brian Townsend, is one of 51
Schaumburg employees earning over $100,000, while the village’s
median household income stands at just $75,658. Meanwhile, pension
costs – the primary driver behind rising property tax bills – are
costing local taxpayers millions.
Taxpayers in Cook County – where Schaumburg is located – paid an
effective property tax rate nearly double the national average in
2017, according to ATTOM Data Solutions, a property data company.
And their bills appear likely to only further increase, thanks to
the high cost of government and government employees.
And Schaumburg isn’t alone: Other local governments
in Cook County are handing taxpayers an expensive bill. The salaries
of top-paid government employees in five municipalities –
Schaumburg, Evanston, Bedford Park, Rosemont and Berwyn –
significantly outpace what the average local taxpayer makes,
according to a new Illinois Policy Institute report.
Bedford Park, a village with a population under 600 residents, has
82 government employees earning over $100,000. Recently retired
Assistant Fire Chief Jeffery Clohessy’s annual salary of $206,690
dwarfed the village’s median household income by 325 percent.
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