Danville passes property tax and fee hikes to pay for pensions

Owners of Danville property will pay fees of up to $1,020 a year just for local pensions, on top of rising property tax bills.

Danville residents should brace themselves for higher tax and fee bills in 2018 and beyond.

The Danville City Council voted to raise property taxes 10 percent and hike the city’s public safety pension fee to $267 up from the current $96 on property under 5,000 square feet, a 178 percent increase.

Danville aldermen voted in favor of the tax proposal Dec. 5, according to Fox Illinois.

Property owners with buildings greater than 5,000 square feet worth less than $50,000 will have to pay a $600 fee per year toward local police and fire pensions. For owners of property greater than 5,000 square feet and worth more than $50,000, the fee will be $1,020 a year.

Those who qualify for veteran, elderly or disabled exemptions on their property tax bills will also see a fee increase, albeit at a lower rate, to $133.50 annually, instead of $267.

The tax and fee hikes are being enacted as part of a 22-year plan to address Danville’s $105 million unfunded pension liability. The long-term strategy calls for gradually increased taxes and fees on homeowners and businesses until 2040. Under the plan, pension fees and property taxes will increase 10 percent in the first two years, 9 percent in the third year and 4 percent in the fourth year, followed by 3 percent increases in each of the next 18 years.

Though local pension debt is a growing problem across the state, Danville’s police and fire pensions are some of the worst funded in Illinois. But more money isn’t helping. And more tax hikes to pay for legacy debts risks putting Danville in a dangerous tailspin: Higher taxes could lead to further erosion of the local tax base, thus requiring even more tax and fee hikes to bail out local pension funds.

The pension problem

In 2016, Danville’s fire pension fund was less than 17 percent funded, down from 24 percent in 2012, even though Danville’s contributions have been steadily going up. Since 2012, taxpayer funding for the fire pension fund has increased by nearly 28 percent, and yet the fund is in worse shape than it was six years ago.

Danville’s police pension fund is also in terrible shape, having only 30 percent of the funds it needs to pay out future benefits as of 2016. In 2012, the police pension fund was 36 percent funded. This drop in the funding ratio happened despite the fact contributions to the police pension fund increased by 30 percent since 2012.

Meanwhile, the city of Danville’s credit is on the verge of “junk” status. Moody’s downgraded the city’s municipal bonds within a couple notches of junk status in June, making borrowing even more expensive for the cash-strapped city.

“The downgrade … primarily reflects steady growth in the city’s unfunded pension burden, which has risen to a very high level,” Moody’s wrote. “The negative outlook reflects our expectation of further growth in the city’s already elevated long-term liability burden. This raises the possibility that a high and growing fixed-cost burden will constrain the city’s operating flexibility and stress its budget.”

Unfortunately, those aren’t the end of Danville’s worries.

Residents and jobs have been leaving the area in recent years. And the local economy is struggling. The Danville Metropolitan Statistical Area lost jobs over the year, according to the Illinois Department of Employment Security. And on top of all that, Danville is only a short drive away from Indiana, making it a much easier choice for residents to flee tax hikes that don’t result in new or improved services.

Of course, Danville’s long-term revenue plan is meant in part to steer clear of further pain.

But unless Springfield allows Danville to pursue real reforms in order to stop the growth of its unfunded liabilities, and to restructure its existing pension debt, it will be difficult if not impossible for the city to turn its fiscal ship around.

Solutions

Those reforms would include both long-term and short-term solutions to get out of debt, including assigning new police and fire employees 401(k)-style plans instead of defined-benefit pensions.

And because Danville’s local debt crisis is so severe, all options should be on the table in order to limit further pain for local residents, including .

However, Danville cannot pursue these reforms alone. State law currently mandates that municipalities such as Danville maintain traditional pension funds for city police and professional firefighters. The state also does not permit municipal bankruptcies or reductions in promised pension benefits.

Communities such as Danville need the freedom to deal with these costs head-on, rather than being forced into perpetual tax hikes to pay for failing city pension funds.