Normal property taxes rise to fuel pensions

Despite increases in city contributions to both its police and fire pension funds, Normal, Illinois’, unfunded police and fire pension liabilities are growing.

The city of Normal, Illinois, is set to raise property taxes on local homeowners in order to keep up with rising pension costs.

Starting in 2018, Normal homeowners are going to see a nearly 6.4 percent increase in their property taxes to “support funding police and fire pensions,” according to The Pantagraph.

This latest hike marks the sharpest increase since 2013; however, annual property tax increases are nothing new for Normal homeowners. Since 2006, Normal residents have seen their property tax rates go up every year.

And looking at the state of Normal’s fire and police pension funds, tax hikes are likely to remain the norm for the foreseeable future.

According to the Illinois Department of Insurance, or DOI, Normal’s police pension fund is only 52 percent funded, meaning it only has 52 cents on hand for every dollar it owes in future benefits. Normal’s fire pension fund isn’t much better. Per the DOI’s report, the fire pension fund is only 56 percent funded.

Here’s what should be even more concerning to residents: These shortfalls have endured despite years of increased funding for both pension funds.

Since 2012, municipal payments toward the Normal police pension fund have increased by nearly 30 percent. Over the same time, the city has increased contributions to the Normal fire pension fund by nearly 17 percent.

And despite both of these increases in funding, the pension funds are actually worse off than they were in 2012.

As of the DOI’s last report, the Normal fire pension fund was only 56 percent funded, yet in 2012 that same fund was 57 percent funded.

Normal’s police pension fund had an even bigger drop, even though it enjoyed larger contributions.

As of 2016, the police pension fund was 52 percent funded, but in 2012 the same pension fund was 55 percent funded, meaning that despite a more than 29 percent increase in city funding, the unfunded liability of the police pension fund has actually gotten worse.

Both funds would’ve been declared bankrupt years ago if they were in the private sector. And hiking taxes year after year only to see the unfunded liability increase is unfair to Normal residents.

One badly needed solution for Normal and other municipalities struggling with insolvent pension funds is the ability to set up 401(k)-style retirement plans for new workers going forward.

Those new plans could be modeled on the 401(k)-style option already enjoyed by more than 20,000 members of the State Universities Retirement System. While this won’t solve Normal’s pension crisis overnight, it would stop the accumulation of pension debt.

Unfortunately for Normal residents, there’s little that can be done in the way of real pension reform at the city level alone. The state should allow towns like Normal to create 401(k)-style alternatives to failing city pension funds.

As residents of Normal and towns across the state brace for higher taxes to prop up these failing funds, that reform cannot come quickly enough.