Editorial | Just the tip of the iceberg

Editorial | Just the tip of the iceberg

Several municipalities are expected to face the pension crisis that's currently gripping Harvey.

Few people pay much attention to Harvey, an impoverished community in the Chicago area. But they should, because it's the canary in the coal mine — a harbinger of municipal pension disasters to come in communities across the state.

Buried under fire and police pension costs, it recently laid off police officers and firefighters to cut costs. But even as city officials were tightening their municipal belt, Harvey took a shot to the gut when Illinois Comptroller Susana Mendoza, using a little-known state law, rerouted $1.5 million in revenue that should have gone to the city over to the woefully underfunded municipal pensions.

Harvey is, to say the least, in deep trouble with little hope of recovery.

"Harvey is out of options. It has no more assets to sell. It can't raise any more money. Its tax base is tapped out, and more than 4,000 property-tax bills have gone unpaid — the most for any city in Illinois," a study on municipal pension woes concludes. "Effective property-tax rates are already at nearly 6 percent of home values, and that's being generous. Most homes aren't worth what the assessments say they are worth. In virtually every way, Harvey is already operating as if it were in bankruptcy — only it's choosing the terms."

However bankrupt they may be, municipalities in Illinois don't have the legal authority to file for bankruptcy. At least for now, there appears to be little appetite in the Legislature to give them that power.

But just as one cannot stand on a beach and command the tide not to roll in, municipalities cannot avoid effective bankruptcy just because they cannot file for legal bankruptcy.

That's why Harvey is just the tip of the iceberg, according to a study conducted by Ted Dabrowski and John Klingner for Wirepoints, a public interest group that studies government financial issues.

In addition to Harvey, the comptroller's office also has diverted $338,000 in tax revenues from North Chicago to its fire pension.

This centipede has many more shoes to drop.

Dabrowski and Klingner report that more than 200 municipalities have failed to meet their pension obligations, a shortfall that lays the groundwork for more garnishments.

"In too many communities, pensioners' retirement security is being wiped out. Homeowners' equity is being destroyed. Businesses are being driven out by taxes. And cities are cutting back on services. Nobody is winning; everybody is losing. The negative impact of the broader downstate pension crisis can't be overstated," they report.

What's being done about it? Municipalities with underfunded pensions are paying what they can.

But other than that, there is nothing on the state Legislature's agenda that demonstrates top state officials have any interest in taking action.

That see-no-evil approach can't last, because cities all over the state are facing ever-increasing financial problems.

Wirepoints identified 20 cities from all over Illinois — including Danville, Rockford, Kankakee, DeKalb, Carbondale, Peoria and Quincy — that are in distress.

In those municipalities with populations over 25,000, pension issues are "wreaking havoc and putting pressure on city budgets."

"Many cities will see 20 to 25 percent of their general budgets consumed by pension costs next year. And taxpayers are putting in far more toward pensions only to watch the system's funding ratios fall," Dabrowski and Klingner state.

Downstate police and fire pension systems, collectively, are 58 percent funded — they owe $23.4 billion in benefits with just $13.4 billion in assets. That average, of course, means that just as many of them exceed the 58 percent funding level, so, too, do many fall short of that standard.

Taxpayers are on the hook for this impending disaster. But when push comes to shove, the Legislature won't be able to avoid taking steps to bring more order to a disorderly process.

If not the bankruptcy option, then there will be something akin to it that requires everyone to take a haircut. In the meantime, Harvey is defaulting on its bond payments and cutting emergency services as it veers down a soon-to-be-crowded path to nowhere.

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