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At budget time, Illinois towns consider large tax hikes as pension costs mount

The Carterville City Council voted Tuesday to approve a 30 percent property tax increase to cover ballooning pension costs.

CARTERVILLE CITY (Illinois News Network) — Municipal leaders across Illinois face cutting services or hiking taxes to pay for growing police and fire retirement contributions as pension costs continue to increase.

The Carterville City Council voted Tuesday to approve a 30 percent property tax increase to cover ballooning pension costs.

“It’s extremely frustrating,” Mayor Brad Robinson said. “Our total pension liability in 2011 was $60,000. Seven years later in 2018, it’s almost $430,000.”

Property owners in EvanstonUrbanaDanvilleNapervillePeoriaMolineQuincyRiver GroveGeneseoMundelein, and others have reported looking at higher taxes to cover growing pension costs in budget discussions.

“This is going on all across the state,” said Mark Glennon, founder of financial watchdog Wirepoints. “From Carterville in southern Illinois to some of the largest cities in the state. These pension contributions are eating their lunch.”

Pension obligations are also affecting the creditworthiness of municipal bonds.

S&P Global Ratings lowered suburban Oak Lawn’s bond rating four notches, a highly-unusual downgrade, based on what the agency called “structural imbalance in the village’s budget and the very weak funding levels in its police and firefighter pension plans.”

Some towns have levies high enough that, combined with growing home values, allow them to hold the line on taxes. After raising taxes in previous years, Normal’s property tax rate will drop based on rising property values under the same levy.

Unlike some other municipalities, Carterville officials have contributed the actuary required contributions, or ARC. Some towns have failed to keep up with contributions, exacerbating pension funding problems. Carterville was required to increase pension contributions after its population rose above 5,000, which forced the city to switch from the Illinois Municipal Retirement Fund to regional police and fire pension accounts in 2012.

The move to regional pension systems required the city’s pension fund balances to be at least 90 percent funded by 2045. Starting in 2018, Illinois law allowed pension funds to go after municipalities that fail to make the required contributions, garnishing their state-allocated tax revenue before they get it.

“We’re in a situation where somebody 100 miles away made rules,” Robinson said. “For a mayor of 5,600, this is quickly going to become unsustainable.”

Glennon said the state needs to take emergency measures to address the rising pension costs before the next economic downturn. Failure to address the problem could leave municipalities with pension bills so high that it would be virtually impossible to raise taxes high enough to cover the cost.

The 30 percent property tax hike in Carterville will cost the average homeowner there an additional $50 in city taxes in 2019.