Springfield’s Shortfall Illustrates Broader Pension Problem

Dec 5, 2019

Many cities across Illinois are struggling to meet required police and fire pension payments. In Springfield, every dollar homeowners pay in real estate taxes goes right back out to cover that cost. Next year, as payments grow, the city needs to come up with an additional $1.5 million dollars.

A few years ago, Bart Rovey bought a bungalow on a brick street in Springfield. Rovey said he was tired of renting. So, he traded rent for a mortgage and property tax payments.

The first week after he lived there, he said he was nervous. “I was like, ‘Oh man, I just spent you know, $100,000,” he said. “But it’s been good since then; I haven’t had any problems.”

Since he bought the house in 2015, nearly all of the property tax he’s paid to the city of Springfield has gone to fund pensions.

“And I think that’s kind of a shame,” Rovey said. He’d like to see more young people like himself move to Springfield. He thinks it’s an affordable city, but it needs to put more resources into the kind of services and amenities that might get people to move here, like a concert series held on a vacant, city-owned lot last summer.

“You have things, good things like that. But I'd like to see more of that with my tax money,” he said. “And it sounds like we're not getting really any of that, because it's all going to pensions.”

Having to dedicate more and more revenue to pensions is a situation many cities are facing. But one reason Springfield’s debt payments are outpacing property tax right now is that the capital city has decided to keep the same property tax rate for more than a decade, at just under $1 per $100 of equalized assessed value.

Rockford has followed a similar policy, keeping the levy the same, according to a report on public safety pensions from the Better Government Association . And the city of East Peoria has also held its property tax rate steady for more than a decade .

“If you're starting from the position of we're not going to change the rate, then by design, the pension contributions are going to outpace the property tax growth,” said Amanda Kass, associate director of the Government Finance Research Center at the University of Illinois at Chicago.

For homeowners who say their taxes have gone up, that is true. Keeping the rate the same does not mean they pay the same amount of money, because the property values have risen over the last few decades. And don’t forget about the other taxing districts, like park districts and schools.

Still, property tax revenue for Springfield has grown slowly while pension payments have ballooned. Twenty years ago, the city paid $4.5 million towards police and fire pensions, in 2010 that number was nearly $17 million, and this fiscal year, it’s around $23.5 million, according to numbers from the city’s budget office.

The real estate taxes used to pay for the library and road projects, but no longer.

“They're making a challenging situation even more challenging,” Kass said.

Springfield has raised other taxes and fees to help cover costs in the last few years, including upping the sales tax and the telecommunications tax.

Facing the future

No matter the property tax policy, cities are facing mounting pension payments. Under state law, the Illinois Department of Insurance tells cities the minimum they have to pay annually for police and fire pensions. That minimum payment is based on the goal of getting to 90 percent funding by the year 2040.

“It's a daunting task that we have in front of us when you look at it … there's no question that police and fire pension obligations are our single biggest obstacle to financial stability,” said Bill McCarty, Springfield’s budget director. He said he understands why Rovey and other taxpayers are frustrated that their money is being spent on what is essentially debt.

“We have day-to-day services that our residents want that, that they expect,” he said. “Therefore we can't divert every dollar that we have to police and fire pensions.”

State lawmakers did approve a plan to consolidate the hundreds of downstate pension funds — including Springfield’s — into two, one for police officers and the other for firefighters. McCarty said the move will save the city some money down the road.

The Illinois Municipal League, which advocated for consolidation, also has proposed another possible solution — lengthening the time frame to 2050 and reducing the funding target to 80 percent. McCarty said it’s worth exploring.

“So it makes more sense to look at it over the long term, perhaps a rolling 20, 30 year time period,” he said. “Rather than just trying to get to target a funding target at a specific point in time.”

Brad Cole, the president of the Municipal League, said the move would help smaller towns in particular.

“Some communities haven’t been able to achieve the payment plan because it’s too steep,” he said.

Still, not all are on board with this suggestion. Springfield Alderman Joe McMenamin said the city should in fact do the opposite – try to pay off the debt sooner. He supported a move to dedicate half the revenues from the recreational marijuana sales tax to shore up police and fire pensions.

He said more needs to be done. 

“We're always playing catch up, and we're really transferring debt from this generation to the next generation,” he said. To avoid this, McMenamin said the city needs to put in more money sooner than later.

Much like a home mortgage, the more you pay up front, the less you end up paying overall.

Rovey agreed the city shouldn’t end up paying more. But, he said, “I don't want to see more taxes... and then all the benefit going to deal with these pensions because then, again, you're not doing anything to make the city better.”

Kass, the researcher, said officials have to answer a tough question: “Are we changing the funded ratio, the funding target, with the best, most prudent kind of policy in mind? Or is it really being done for political reasons — to not have to raise taxes, even if perhaps the capacity to raise the taxes is there?”

Of course, researchers, politicians, and voters often have different views of their capacity — or willingness — to pay higher taxes.