State must lead way if communities are to regain financial stability

Thursday, September 09, 2010

The state's budget crisis is hammering Illinois - and nailing Oak Park in the process. Already, the village has laid off 62 employees, or eliminated their positions - more than one in seven - shrinking the workforce to 377. Payroll has been cut by $4 million, to $26 million. And support for the village's partner agencies has been trimmed by a third over the last three years.

Oak Park's vulnerability shows how the state's $13 billion deficit and sinking credit rating is pinching smaller units of government and threatening constituents with fewer services and higher taxes. pringfield's failure to pay backlogged bills that now total $4.7 billion has disrupted relationships with vendors, jeopardized local businesses and forced nonprofits like the Y and Sarah's Inn to seek additional lines of credit to cover the state's shortfall.

And worse is in store. Gov. Pat Quinn has threatened to reduce by 30 percent the share municipalities receive from the state's Local Government Distributive Fund. For Oak Park that would mean a loss of about $1.2 million. Offsetting such losses means more pressure to raise local property taxes, as is the case with school District 97, owed $4.8 million by the state and seeking voter approval next spring for higher levies. To cope, the village is weighing such actions as eliminating the health department and outsourcing functions like payroll processing, says Chief Financial Officer Craig Lesner. "Nothing is safe," he says. About 10 percent, or $4 million, of the village's $40 million general fund depends on state sources, he says. There will be pressure to increase village hall salaries, which have been frozen for nonunion personnel. In some cases, that means underlings who have received raises provided by union contracts are making more than their bosses.

So far, the village's bond rating hasn't been affected because of aggressive layoffs that include a deputy police chief and other steps to balance the budget. But in the public-finance version of guilt by association, rating agencies are looking with a jaundiced eye on localities like Oak Park, which rely on the state for transfer payments that are at risk. Lower credit ratings mean higher finance costs. "We're operating, unfortunately, on a 1 percent fund balance," says Village Manager Thomas Barwin, when the norm is 25 to 30 percent.

Police and fire pension obligations will continue to eat up Oak Park's budget. Barwin says pension obligations now account for 30 percent of police costs and 50 percent of fire department outlays. Those pensions are now gobbling up about $6 million each year, or just under one-third of the village's property tax levy of $19.86 million, Lesner says. And even that hasn't been enough: Between 2008 and 2009, the funded ratio for police pensions has dropped to 56 percent from 70 percent and for fire pensions to 46 percent from 58 percent.

Don't count on the state for help in that area, either: Illinois is expected to be paying $14 billion, or more than a third of state's revenue, to pension obligations by 2018. That's more than double the current $6.5 billion. "It's likely to get worse," says Laurence Msall, president of the Civic Federation, a fiscal watchdog. Citing a tepid attempt to defuse the crisis by raising retirement ages for state employees - but only for new hires - a move that left untouched state mandates for police and fire pensions, he adds, "We didn't solve the problem; we didn't even stabilize the problem during this last legislative session."

What all this means is that, despite fiscal restraint and thoughtful stewardship of resources, communities throughout the state (Oak Park, in particular) will be struggling to stay afloat amid the sea of red ink created by the state of Illinois. Cities, towns and villages are not fully in control of their own financial destiny. Municipalities are inextricably tied to the state for much of their operational revenues. As such, while voters must certainly demand prudence and integrity of elected local officials and staff administrators, in large measure, the difficult environment and many challenges currently faced at the local level result from failures at the state level.

While the worst may be over, the days of austerity are only beginning. For Oak Park's fiscal house to be kept in order, legislators and policy makers in Springfield must lead the way.

• Frank Pellegrini is the president of the Business and Civic Council of Oak Park.