McCALEB OP-ED: Collapse of Harvey’s finances signals what’s to come across Illinois

(Illinois News Network) — The unfolding fiscal crisis in south suburban Harvey should send shivers down the spines of public employees and retirees across Illinois.

It also should give pause to taxpayers, who already pay the highest combined local and state taxes in the country and who continually are being forced to pay more because of unsustainable public pension benefits and a culpable state government that refuses to do anything about them.

Last fall, Illinois’ First District Appellate Court ordered the city of Harvey to raise its property taxes specifically to pay for its Firefighters’ Pension Fund, which has just 22 percent of the assets it needs to meet all of its obligations to current and future retirees.

Enforcing a 2010 state law, Comptroller Susana Mendoza in February began garnishing the city’s tax revenue to make up for similarly large shortfalls in its police pension fund. An appellate court has since stayed that action, but Harvey laid off 40 police and fire department employees last week as a result of losing about $1.5 million in tax revenue.

Located near the Indiana border, Harvey is home to a shrinking population of fewer than 25,000 residents – 38 percent of whom live in poverty, according to 2016 U.S. Census estimates. In 1990, its population was closer to 30,000 residents.

The median income in Harvey, in 2016 dollars, was $21,909. The median home value was $72,700.

Harvey has had high crimes rates for decades, yet 13 patrol officers were among those let go in last week’s purge.

In short, Harvey is a community on the brink of financial collapse. And its residents are the ones who will pay for it.

Dabrowski and others – both inside and outside of Harvey – agree that the city has been mismanaged for years. But its staggering pension obligations have accelerated its decline to the point where legal bankruptcy could be its only remaining option.

Yet the state of Illinois doesn’t allow municipalities to declare bankruptcy. Even as Illinois cities such as Harvey and others continue their respective free falls toward insolvency, state law prevents them from doing much of anything but cutting staff and raising taxes – even when it is obvious that taxpayers have little or nothing left to give.

It’s a vicious cycle that is nearing its breaking point in Harvey.

“They don’t control collective bargaining, the state controls that now,” said Dabrowski, who has been studying Illinois’ pension crisis for the past decade. “The state won’t let cities change their pension benefits [because of the no diminishment clause in the constitution.] But at the same time they won’t allow for them to file for bankruptcy.

“A place like Harvey really has nothing left to do,” Dabrowski said.

The reality is Harvey might be only the tip of the iceberg. A growing number of Illinois cities and villages are approaching Harvey’s dire situation.

More than half of Illinois’ 651 municipal public safety funds are funded at rates below 60 percent, Dabrowski pointed out in a recent blog post.

“Harvey may be the first city to suffer garnishment, but it won’t be the last,” he wrote this week. “Illinois has a $10 billion downstate pension crisis – made up of municipal police and firefighter pension funds – that is separate from the state’s own $130 billion crisis.”

Municipal pension funds in East St. Louis, Round Lake Park, Sauk Village, Lakemoor and East Alton – to name just a few – are facing similar state action.

It’s a crisis that’s been decades in the making, and state government responds by doing what, exactly?

“Lawmakers are doing nothing to solve the problem, and they should be shamed,” Dabrowski said. “I think that’s the No. 1 message. They should be shamed.”

Dabrowski recommended four specific reforms that could help municipalities turn things around.

First, end defined benefit pensions for new employees and move them to 401(k)-style plans used in the private sector.

Second, amend the constitution to remove the no-diminishment clause.

Third, give collective bargaining power back to local governments.

“The state gives teachers the power to strike,” Dabrowski said. “Police and firefighters are allowed to go to binding arbitration whenever they don’t like [a contract offer.] The cities don’t control their futures. We have some of the most punitive collective bargaining laws in the nation by far.”

Finally, cities need to be able to file for bankruptcy so they can refinance their debt.

“Yes, it might mean that creditors take a haircut,” he said. “And it might mean some pensioners are impacted.”

But it’s better than the alternative – entire pension systems collapsing and public employees and retirees losing all of their benefits.

How many more Illinois cities are going to have to fall before the General Assembly acts?

Dan McCaleb is news director for the Illinois News Network and is a veteran editor who has worked in journalism for more than 25 years, previously serving as editorial editor for Shaw Media and the top editor for the Northwest Herald in suburban McHenry County.