Towns spending 33% of property taxes on pensions

In 2018, the average amount spent on public pensions by 74 suburbs was equal to one-third of what those towns collected in property taxes.

In a few suburbs, the amount spent on pension debt was almost as much as the total amount property owners paid in taxes that year.

That's the case in Lombard, which collected more than $9.3 million in property taxes in 2018 while it contributed nearly $8.6 million toward pensions, roughly 91% of what the village received in property taxes.

Towns like Bloomingdale, Kildeer, Oakbrook Terrace, Schaumburg, West Chicago and Winfield all paid pension obligations in excess of 60% of their property tax collections. That money goes to retirees' pensions and to cover anticipated future pensions for police officers, firefighters and other municipal employees.

In Lombard, the high ratio devoted to pensions actually arises from the town's broad revenue base. Property taxes make up just 12.5% of Lombard's total annual revenue.

"We are fortunate to not rely heavily on property taxes for all operations of the village," said Lombard Village Manager Scott Niehaus. "And we have a program that allots any surplus revenue to our pension obligations."

Since 2013, Lombard has exceeded the minimum recommended contributions to its two public safety pension programs in an effort to fully fund retirement benefits for police and fire ahead of a 2040 deadline. Still, the village's police pension plan is barely 70% funded and the fire pension program is only 64% funded.

The pension program for all other municipal workers -- the Illinois Municipal Retirement Fund -- is required by state law to be fully funded.

A Daily Herald analysis of property tax records on Illinois Comptroller Susana Mendoza's government finance tracking website and the towns' annual financial audits showed the amount of money 42 suburbs contributed to pension obligations in 2018 was equal to more than a third of what those towns received in property taxes.

Municipal leaders say that as pension obligations grow, there is less money to spend on other services. As more property taxes are dedicated to pensions, towns have to raise fees and other taxes to pay for municipal operations.

Many suburbs in the analysis pay into three pension programs, as Lombard does. Several only pay police and IMRF pension obligations because they are in a separate fire protection district.

"It's fair to say that rising pension costs are driving property tax increases," said Naperville City Manager Doug Krieger, "especially in smaller communities without as much of a diverse revenue base."

Naperville spent $22.3 million on pension contributions in 2018, an amount equal to 45.3% of the $49.2 million in property taxes collected. The city's property tax revenue increased by less than $1 million from 2017 to 2018, but pension payments increased by more than $2 million in that same time.

Krieger said stronger sales tax revenue and charges for city services help reduce the city's reliance on property taxes.

Collectively, the 74 suburbs in the analysis received more than $910 million in property taxes in 2018, according to state financial records. Those suburbs spent almost $309 million on pensions.

Some recent changes could result in curbing costs to municipalities.

The legislature recently consolidated investments of the state's nearly 650 fire and police pensions into two funds. The move was intended to cut investment costs and maximize returns, but the savings won't be immediate.

"It was a meaningful piece of legislation because it showed a willingness to work together, but it will be years before you see any impact," Niehaus said.

The average IMRF pension is a little more than $22,000 a year, according to the program's website. Statewide, the average police pension in 2018 was slightly less than $66,000, while the average firefighter pension was just under $68,000 a year, according to Illinois Department of Insurance financial reports.

The fire and police pensions automatically grow 3% each year. The IMRF pensions grow by 3% of the original pension amount each year, but those retirees also get a special 13th payment annually to make up for the lack of a compounded cost-of-living increase.

State Sen. Dan McConchie, a Hawthorn Woods Republican, advocates eliminating pensions altogether for future public employees because of the costs.

"It would be less expensive to give new workers Social Security and a 401(k)," he said. "And these significant costs are eventually going to crowd out other services."

When Oak Park Democrat Don Harmon was elected as the new state Senate president last week, he said property tax reform is one of the top legislative priorities. A bipartisan Illinois Property Tax Relief Task Force draft report has been making the rounds in Springfield but has not been publicly released.

"Senate President Harmon looks forward to reviewing the recommendations for change from the property tax task force," said John Patterson, a spokesman for Harmon. "As he's talked to his colleagues from across the state in recent weeks, it's clear the homeowners of Illinois feel overburdened."

That's something municipal leaders have heard many times throughout the years from legislative leaders. They know there's no simple remedy.

"The idea that you can accomplish property tax reform without causing some pain doesn't exist," Niehaus said.

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Contact Jake at jgriffin@dailyherald.com or (847) 427-4602.