Hoffman Estates passes property tax hike
Seeing rising pension costs, a decline in state assistance, and a new state tax-collection fee, in 2018 the village plans to raise the property tax levy 4.9 percent and make a 1.2 percent cut to the village’s budgeted revenues, in addition to a 1.7 percent spending cut.
As part of its 2018 budget, on Dec. 4 the Hoffman Estates Village Board approved a 4.9 percent increase in the village’s property tax levy, as well as a 1.2 percent cut to budgeted revenues from the prior year, according to the Daily Herald. The total net operating and capital budget for fiscal year 2018 will see a 1.7 percent decrease from fiscal year 2017. Hoffman Estates officials placed blame on the state, citing reductions in funding.
The state of Illinois cut funding for the Local Government Distributive Fund, or LGDF, program by 10 percent as part of its budget package passed in July. The cuts cost Hoffman Estates $515,000 for its 2017 and 2018 budget years, according to the Daily Herald. The state is also imposing a 2 percent administrative fee on home rule sales tax revenues.
The village has also seen disappointing consumption tax revenues.
But cuts to LGDF and flat or declining consumption tax revenues are not the only things costing Hoffman Estates. The village will use revenues from the property tax levy increase to make payments toward Hoffman Estates’ public safety pensions.
These expenses, coupled with the drop in other sources of revenue, are causing the village to make tough choices. One such choice is the decision not to fill at least six vacancies within village government, including three firefighters and two police officers.
Like many communities across Illinois, Hoffman Estates is struggling under the weight of growing costs for retirement benefits.
Taxpayer contributions to Hoffman Estates’ fire pension fund increased by nearly 38 percent from 2012 to 2016. Yet despite this large increase in village dollars, the fire pension fund’s funding level rose by less than two percentage points, up to 67.8 percent in 2016 from 66.4 percent in 2012.
And Hoffman Estates’ police pension fund is in worse shape. From 2012 to 2016, taxpayer contributions to the fund increased by nearly 32 percent. Yet the police pension fund is actually worse off than it was in 2012. In 2012, the police pension fund was nearly 62 percent funded, but by 2016 the funding level had dropped to 59.1 percent.
It’s clear that solving the problem will require more than continuing to hit up local taxpayers.
The long-term fix for communities like Hoffman Estates would be for the village to shift new police and fire employees to 401(k)-style retirement plans, instead of costly defined-benefit pensions.
One possible model is the 401(k)-style plan for state university workers in the State Universities Retirement System, or SURS. The plan has been operating for nearly two decades, and more than 20,000 university workers have voluntarily opted into the 401(k)-style plan instead of the traditional pension offered by SURS.
Officials in Hoffman Estates and in municipalities across Illinois should have the choice to enact real pension reform by utilizing 401(k)-style plans. However, Hoffman Estates cannot do this reform unilaterally. State law requires municipalities like Hoffman Estates to set up pension funds for police and professional fire departments, leaving local residents no real choice in the matter.
Furthermore, the problem of pensions’ worsening funded levels despite the influx of more money from local taxpayers demonstrates the need for state lawmakers to protect homeowners from skyrocketing property tax bills.
Passing a property tax freeze on homeowners’ actual bills (not just the levies of local governments), and requiring voter approval for property tax hikes are two powerful reforms that would go a long way for families struggling to pay higher property taxes as their own incomes stagnate.
Springfield should give communities like Hoffman Estates the choice to enact real pension reform, while protecting residents from ever-increasing tax bills.