Palatine passes property tax hike to pay for pensions

Palatine homeowners will see higher property tax bills in order to pay for higher local pension costs, as well as a dip in state funding.

The Palatine Village Council approved a 3.82 percent property tax hike in a 4-1 vote Dec. 4. Though originally proposed as a 4.26 percent hike, the increase was lowered after the village council agreed to make up the difference by raising ambulance fees.

The revenue from the hike in the village’s property tax levy will be used to pay for increased police and fire pension costs, in addition to filling in for funding reductions at the state level, according to the Daily Herald.

Illinois withdrew $300,000 in local government assistance from Palatine in addition to levying an $85,000 tax-collection fee.

However, the biggest way in which Springfield has hurt Palatine is in hamstringing real, local pension reform. And Palatine councilmembers know it.

“Because of that pension position, it’s just untenable,” Palatine Village Councilman Tim Millar said, according to the Daily Herald. “There is no way to solve it, and by raising (the tax levy), it doesn’t solve it, either.”

Millar has a point about the property tax levy. Increased taxpayer funding has not solved Palatine’s police and fire pension problems in the past, and likely won’t be able to solve it in the future without inflicting serious pain.

Taxpayer contributions to the Palatine fire pension fund increased by over 27 percent from 2012 to 2016, up to more than $3.6 million from just under $2.9 million. But that hardly made a dent in the fire pension fund’s funded ratio, which increased by less than two percentage points, to 57.3 percent in 2016 from 55.7 percent in 2012.

This means the fund has less than 58 cents on hand for every dollar needed to pay out future benefits.

After declining from 2012 to 2014, taxpayer contributions to the Palatine police pension fund jumped nearly 20 percent from 2014 to 2016, up to $3.5 million from around $2.9 million. Despite the increase, the funding level of the Palatine police pension fund rose by just 2 percentage points, to 59.5 percent in 2016 from 57.5 percent in 2014.

Both pension funds would’ve been declared bankrupt years ago had they been in the private sector. And barring reform, that means Palatine residents will be paying higher and higher taxes for years in order to make up the shortfall.

Unfortunately, they’re not alone. Local pension debt in Illinois rose to nearly $57 billion in 2016, up from $38 billion in 2010.

This persistent and worsening problem underscores 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.

One long-term solution to the pension problem, specifically, is to give new police and fire employees 401(k)-style retirement plans. Unlike defined-benefit plans, 401(k)-style plans give workers control over their own retirements, rather than relying on local government promises. Those plans could be modeled off of the State University Retirement System’s optional 401(k)-style plan for university workers. The plan was started nearly two decades ago and more than 20,000 workers have opted out of the traditional pension plan in favor of the 401(k)-style plan.

However, towns such as Palatine are severely limited by the state government in actions they can take to reform their own pensions. Municipalities are mandated by the state to have costly city pension funds for professional fire and police departments. And thanks to the Illinois Constitution’s pension protection clause, once a pension is promised it can never be reduced, meaning taxpayers are on the hook for the full cost of the pension no matter what.

As long as the state refuses to offer homeowners any real property tax protection, and fails to empower cities such as Palatine to truly reform their own pensions and debt, Palatine residents should expect more tax hikes.