Reductions in state subsidies are one reason for Decatur’s predicament, but long-running pension woes are an even larger source of pain.
Decatur may soon have to shed police and fire personnel – a concern local leaders have linked to a recent reduction in funding from the state. Mayor Julie Moore Wolfe told a state Senate committee May 16 that further reductions in funding from Springfield would lead to layoffs.
It’s true that a loss in state funding was one driver of Decatur passing a budget more than $3 million out of balance for 2018, with the city losing roughly $1 million in state dollars from the Local Government Distributive Fund, or LGDF. But that’s not the biggest pain point for city finances in the long term.
The city’s police and fire pension funds – not the money it has depended upon from the state – are the elephants in the room. Wolfe acknowledged as much in her testimony, noting that the city government’s entire property tax levy is consumed by pension payments.
As of 2016, Decatur’s firefighter pension fund had just 56 cents on the dollar and its police pension fund had 64 cents on the dollar needed to pay out future benefits, according to a 2017 biennial report by the Illinois Department of Insurance, or DOI. These dismal funding ratios are despite the fact that local taxpayer contributions to public safety pensions have more than doubled since 2005.
In 2005, Decatur taxpayers contributed just over $4 million in total to the city’s police and fire pension funds. In 2017, they contributed over $9.2 million.
These ballooning costs have helped Macon County’s effective property tax rate rise to twice the national average. And beyond property taxes, Decatur has targeted other revenue streams to mask its financial woes, including instituting a food and beverage tax and hiking its gas tax.
An ever-increasing tax burden has gone hand-in-hand with Decatur’s outmigration crisis, and consequently the losses in state funding tied to population. Changing the trajectory of the city will require reforms to its pension funds and spending moving forward.
But if Decatur were to follow the lead of other Illinois cities in the same boat, a mix of tax hikes and loss of public services could be on the way instead. The city of Harvey – where residents shoulder one of the heaviest property tax burdens in the state – recently had to lay off 40 police and fire personnel, as the city became more than $7 million delinquent on its pension payments.
Several downstate communities are seeing similar situations play out. The city of Danville passed a property tax hike in 2017 to pay for its virtually bankrupt pension fund. Local property owners in the struggling city now face a dedicated annual fee of up to $1,020 just to pay for pensions. Kankakee in 2018 chose to hike sales taxes, with the additional revenue directed entirely to the local pension funds. In Alton, officials are moving forward with a plan to sell the city’s water treatment plant to cover an upcoming $8 million police and fire pension bill.
None of these options would be good for Decatur taxpayers, who are consistently choosing to leave the city for financial relief and better opportunity. Decatur needs to grow, and reforming its property taxes is a path to do that. Unfortunately, as long as the state continues to tie local governments to rising pension costs, relief won’t be coming any time soon.
The preceding was originally published on the Illinois Policy Institute website.
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