Round Lake Park’s police pension crisis could result in state intervention
Under Illinois law, towns that miss required pension contributions risk state intervention. In 2016, Round Lake Park paid less than 40 percent of its required pension contribution.
In a Lake County village about 50 miles north of Chicago, one of Illinois’ worst-maintained pension funds raises the specter of state intervention, if recent examples are any indication.
Among local pension systems, Round Lake Park’s police pension fund is one of the worst-funded in Illinois. The fund has less than 22 cents on hand for every dollar owed in future benefits, according to a 2017 Department of Insurance biennial report.
From 2012-2016, taxpayer contributions to Round Lake Park’s police pension fund increased nearly 15 percent, yet the pension’s funding ratio only saw marginal improvement.
Round Lake Park’s total required pension contribution for 2016 was just over $551,000. However, the village only contributed $211,320, according to a report by Wirepoints.
If the city of Harvey is any indication, Round Lake Park’s contribution shortfall could potentially result in the state redirecting revenue meant for the village in order to make payments to the police pension fund. According to state law, pension funds that do not receive total required payments may demand the state comptroller intercept revenues to make required contributions.
In Harvey, after years of poor pension management, the Illinois comptroller’s office began garnishing city tax revenues in an attempt to shore up Harvey’s failing police pension fund, leading to layoffs of dozens of Harvey police and firefighters. But for now, the courts have placed a temporary hold on the intercept.
North Chicago’s firefighter pension fund appears to be next in line for this type of state garnishment.
In 2017, the First District Appellate Court ordered Harvey to raise property taxes in order to make payments toward its fire pension fund, despite the fact that Harvey residents already paid some of the highest property tax rates in the state.
Round Lake Park’s police pension fund was in such bad shape that Round Lake Park held a village-wide referendum in November 2016 on whether the village should borrow $5.4 million to shore up its police pension fund by issuing bonds to investors. The referendum was successful, but one wonders if Lake County residents paying some of the highest property taxes in the nation will put up with higher costs for similar or worsening services.
In 2013, Round Lake Park held a similar referendum seeking permission to borrow cash to pay for pensions, but the idea was ultimately voted down by residents.
Though the 2016 referendum succeeded, the long-term stability of Round Lake Park’s police pension fund is by no means certain. Homeowners need only look to other communities with similar pension funding levels such as Harvey.
Like Round Lake Park’s police pension fund, Harvey’s fire pension fund is only around 22 percent funded; an abysmal pension funding ratio that would guarantee bankruptcy if it were in the private sector.
But local leaders have few real options. Illinois law mandates towns like Harvey and Round Lake Park maintain and fund costly defined-benefit pensions for police and professional fire departments. And thanks to the Illinois Constitution’s pension protection clause, promised benefits can never be “diminished or impaired.” Even modest reforms to unearned, future benefits have been ruled illegal by Illinois courts.
Local governments across the state face a tough ultimatum: Find the money for pension contributions through tax hikes, service cuts and costly bond ventures, or risk state intervention.
Homeowners in Round Lake Park already face an effective property tax rate of 5.1 percent, according to a 2015 Chicago Tribune report. In other words, homeowners will have paid the equivalent of their home’s value in property taxes alone after 20 years. Further property tax hikes to pay for services already rendered may risk eroding the local tax base.
As things stand, local leaders facing looming pension crises are effectively handcuffed. Hammering out a solution that is fair to both government workers and taxpayers will require leadership from Springfield.